FCA hands out £46 million in fines over Woodford fund failures

Former star fund manager Neil Woodford, who fell from grace when his investment firm collapsed in 2019, has been fined by the Financial Conduct Authority (FCA) and banned from holding senior manager roles and managing funds for retail investors.

It comes six years after the high-profile collapse of Woodford’s boutique firm Woodford Investment Management (WIM).

The firm was forced to close after investors rushed to withdraw their money from the funds, which had large holdings in hard-to-trade shares, triggering one of the UK’s biggest investment scandals.

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The FCA announced yesterday (5 August) that following an investigation, it has fined Woodford £5,888,800.

WIM has also been handed a £40 million fine.

A campaign group has now renewed its calls to strip Woodford of his CBE. A petition asking the Cabinet Office to remove the former fund manager’s CBE “because of the terrible harm the Woodford scandal has caused” has attracted 513 signatures so far.

In an open letter to Sir Chris Wormald, chair of the Honours Forfeiture Committee, Andy Agathangelou – founder of Transparency Task Force and co-founder of The Woodford Campaign Group – wrote: “This scandal is obviously a matter of great public interest – hundreds of thousands of people have been directly impacted by it, many having lost life-changing amounts of money.

“Furthermore, the scandal impacted the reputational integrity of the UK’s investment sector as a whole, with inevitable adverse effects on trust and confidence in investing, and thereby damage to the growth prospects of the UK economy.

“Indeed, it could even be argued that there is a certain irony in Mr Woodford having been awarded his CBE ‘for services to the UK economy’.”

Woodford and Woodford Investment Management are appealing the FCA fines and have referred the decision notices to the upper tribunal.

This means the fines are provisional for now and could be overturned.

The FCA’s investigation comes weeks after Woodford launched an investment strategy service called W4.0 aimed at “thoughtful, independent and long-term” investors.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “Being a leader in financial services comes with responsibilities as well as profile.

“Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund. The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”

What happened to the Neil Woodford fund?

Woodford had built a strong reputation for stock-picking at Invesco and decided to go solo in 2014.

His flagship fund, Woodford Equity Income Fund (WEIF), managed more than £10 billion at its peak.

But he soon faced criticism for investments made in illiquid, private businesses, and many investors withdrew their money.

This caused problems as the fund couldn’t sell the holdings fast enough. As a result, redemptions were suspended in June 2019. The fund was later closed and wound up.

The value of the WEIF had fallen from a high of more than £10.1 billion in May 2017 to just £3.6 billion in the run-up to its suspension.

Why did the FCA fine Neil Woodford?

The FCA concluded that between July 2018 and June 2019 WIM and Woodford made “unreasonable and inappropriate investment decisions".

It said they disproportionately sold more liquid investments and bought less liquid ones over this period.

This meant that at the time of suspension, only 8% of the investments held by WEIF could be sold within seven days. Under rules in place at the time, investors should have been able to access their funds within four days.

The FCA said WIM and Woodford did not react appropriately as the fund’s value declined, its liquidity worsened and more investors withdrew their money.

This disadvantaged investors who remained in the fund, compared to those who had withdrawn their investment before the fund was suspended, the FCA said.

The FCA has concluded that Woodford held a “defective and unreasonably narrow understanding of his responsibilities”.

Despite his senior role, the City watchdog said he did not accept that he had a responsibility to oversee the management of the fund’s liquidity, including in interviews conducted by the FCA.

The investigation suggested he also failed to provide proper oversight of WIM’s relationship with Link Fund Solutions (Link), the WEIF’s authorised corporate director, including after Link raised concerns about the fund’s liquidity.

The FCA considers Woodford’s and WIM’s failings to have led to a significantly increased risk of the fund being suspended.

The regulator has also investigated Link’s role in the collapse and has set up a £230 million redress scheme for investors stuck in the fund when it was suspended.