FCA Cites 'Defective' Oversight in £46 Million Fine Over Frozen Fund

Key Takeaways

• Nearly £46M in Fines: FCA proposes fines of £5.89 million for Neil Woodford and £40 million for Woodford Investment Management.
• Leadership Ban: Woodford faces a ban from holding senior roles or managing retail funds.
• Massive Investor Impact: The fund’s value fell from over £10.1 billion in 2017 to £3.6 billion by June 2019, leaving investors unable to redeem funds.
• Liquidity Mismanagement: FCA concluded Woodford and WIM failed to maintain liquidity standards, contributing to the fund’s suspension.
• Ongoing Tribunal Review: Both parties have appealed the FCA’s findings, meaning outcomes remain provisional pending Upper Tribunal proceedings.

Deep Dive

The UK Financial Conduct Authority (FCA) has issued decision notices proposing nearly £46 million in penalties against fund manager Neil Woodford and his former firm, Woodford Investment Management (WIM), over serious failings in their management of the now-defunct Woodford Equity Income Fund (WEIF).

While both Woodford and WIM have referred the case to the Upper Tribunal to challenge the FCA’s findings, the regulator has made clear that its view of their misconduct stems from systemic lapses in liquidity oversight and risk management leading up to the fund's collapse in 2019.

According to the FCA, Mr. Woodford faces a fine of £5.89 million and a prohibition from holding any senior management or retail fund management role. His firm, WIM, is facing a separate fine of £40 million.

At its peak, WEIF had over £10.1 billion in assets under management, but by June 2019, the point of its suspension, its value had plummeted to just £3.6 billion. The suspension left thousands of retail investors unable to access their savings, sparking public outcry and a series of regulatory probes.

The FCA concluded that between July 2018 and June 2019, both Woodford and WIM made "unreasonable and inappropriate" investment decisions that significantly increased the fund’s exposure to illiquid assets. During that period, the fund managers sold off more easily traded investments and instead acquired harder-to-sell securities, resulting in a situation where just 8% of the fund’s assets could be liquidated within seven days. Under FCA rules, funds like WEIF should have been able to allow redemptions within four days.

As WEIF’s value deteriorated and outflows increased, both WIM and Woodford failed to respond appropriately, the FCA said, thereby disadvantaging investors who remained in the fund while those who exited earlier avoided greater losses.

In its decision notice, the regulator also faulted Mr. Woodford’s understanding of his responsibilities, describing it as “defective and unreasonably narrow.” The FCA said he did not accept responsibility for managing the fund’s liquidity, even in interviews conducted during the investigation, and failed to provide proper oversight of WIM’s relationship with Link Fund Solutions, WEIF’s authorized corporate director. This was despite Link having raised liquidity concerns prior to the fund’s suspension.

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

The enforcement action follows previous FCA findings against Link Fund Solutions, which culminated in a £230 million redress scheme for investors trapped in WEIF when it was suspended.

Because both Woodford and WIM have appealed the FCA’s decision notices to the Upper Tribunal, the outcome remains subject to judicial review. The Tribunal will examine the evidence and determine whether the proposed penalties and prohibitions should stand.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.