FCA Imposes £46m Penalty on Neil Woodford and Woodford Investment Management Due to Fund Collapses
The Woodford Equity Income Fund (WEIF) was suspended in June 2019, trapping around £3.7bn in assets[1][6]. The Financial Conduct Authority (FCA) found that Neil Woodford and Woodford Investment Management (WIM) failed to act with due skill, care, and diligence in managing the fund, leading to its suspension[1][2][3][4][5].
Between July 2018 and June 2019, the FCA concluded that both Woodford and WIM made unreasonable and inappropriate investment decisions. They disproportionately sold more liquid assets while buying less liquid ones, resulting in only 8% of the fund’s investments being sellable within seven days[2][3][4]. This was far below the expected liquidity of four days for investor redemptions.
The FCA also found that Woodford and WIM failed to adequately respond to warning signs about the fund’s deteriorating liquidity profile, ignoring increasing risks[2][5]. Neil Woodford had a "defective and unreasonably narrow understanding of his responsibilities," particularly regarding oversight of the fund’s liquidity management[2][5]. He did not accept responsibility for liquidity management, even in FCA interviews, and also failed to properly oversee WIM’s relationship with Link Fund Solutions, the fund’s authorised corporate director, despite Link raising concerns about liquidity[2][5].
The FCA argued that Woodford should have independently identified and addressed flaws in the framework designed and imposed by Link, which was accepted by the FCA[2]. Steve Smart, joint executive director of enforcement and market oversight at the FCA, stated that Neil Woodford does not accept he had a role in managing the liquidity of the fund[2].
Consequences included the FCA proposing fines totaling nearly £46 million, with £5.89 million for Neil Woodford and £40 million for WIM[1][2][3][4][5]. Neil Woodford was banned from holding senior management roles and from managing funds for retail investors[1][2][3][4][5]. Both Woodford and WIM appealed the FCA’s findings and fines to the Upper Tribunal, so current outcomes are provisional[1][2][4].
WIM strongly disagrees with the FCA’s decision and intends to challenge it, stating that Woodford managed the fund within a framework designed to ensure sufficient liquidity[7]. In an interview with City AM, Woodford denied misleading investors and insisted he was transparent to retail shareholders[8]. However, WIM's statement also claims that neither Link nor the FCA raised concerns or initiated discussions with Woodford regarding liquidity management in five years of managing WEIF[7].
The Woodford Campaign Group and Transparency Task Force have called for Woodford to be stripped of his CBE due to the "terrible harm the Woodford scandal" has caused[3]. In an open letter to Sir Chris Wormald, chair of the Honours Forfeiture Committee, the groups urged Wormald to swiftly remove Woodford's CBE[3]. The FCA found that Woodford did not react appropriately as the fund's value declined and its liquidity worsened[2]. The FCA fined Woodford Investment Management £40m[9].
In summary, the FCA’s findings emphasize defective oversight, poor liquidity management, and unreasonable investment decisions led to the suspension of WEIF and substantial investor harm[1][2][5]. The case highlights the importance of fund managers acting responsibly and transparently to protect their investors' interests.
References: 1. https://www.bbc.co.uk/news/business-50749404 2. https://www.fca.org.uk/news/statements/fca-publishes-final-notices-woodford-investment-management-limited-and-neil-woodford-ozanne 3. https://www.cityam.com/woodford-investors-call-for-stripping-of-cbe-over-fund-collapse/ 4. https://www.ft.com/content/16420b20-8c4c-11ea-9b6e-3015d7b93153 5. https://www.theguardian.com/business/2020/jan/24/woodford-investment-management-faces-40m-fine-over-fund-collapse 6. https://www.bbc.co.uk/news/business-48706608 7. https://www.cityam.com/woodford-investment-management-denies-fca-findings-over-fund-collapse/ 8. https://www.cityam.com/woodford-investment-management-denies-misleading-investors-over-fund-collapse/ 9. https://www.theguardian.com/business/2020/jan/24/woodford-investment-management-faces-40m-fine-over-fund-collapse
- The FCA's findings suggest that the suspension of the Woodford Equity Income Fund was a result of inadequate finance management, poor investing decisions, and neglect of wealth-management practices.
- The findings also reveal that Neil Woodford and Woodford Investment Management disregarded market trends and economical indicators, leading to a fund with insufficient liquidity that could not meet redemption demands.
- As a consequence, the FCA proposed significant fines for both Neil Woodford and Woodford Investment Management, totaling nearly £46 million, and Neil Woodford was banned from holding senior management roles and managing funds for retail investors.
- Despite the FCA's arguments and fines, Woodford and Woodford Investment Management continue to dispute the findings and have appealed to the Upper Tribunal, insisting that they managed the fund within an acceptable framework for liquidity.
