The Financial Conduct Authority has issued a draft warning notice fining Link Fund Solutions £50mn following an investigation into its handling of the Woodford Equity Income fund.
The regulator said this morning (September 21) that the notice it was issuing was a “normal step” in the FCA’s enforcement process and provided the recipient with an opportunity to resolve the case by agreement.
Link Fund Solutions, the authorised corporate director of the fund, now has 14 days to respond to the notice.
The company can either agree to resolve the case, or it can challenge the findings at the Regulatory Decisions Committee, and ultimately the Upper Tribunal, which is the FCA's standard process.
The notice includes a penalty of £50mn, which will be discounted if paid promptly, alongside the £306mn in redress announced last week.
Today, the FCA said the redress reflected its view of Link Fund Solution’s failings in managing the liquidity of the Woodford Equity Income Fund.
“It does not reflect any amount which may be owed to anyone else, including members of the fund, as a result of potential wrongdoing by other parties," the regulator added.
In a statement released this morning, Link Group said Link Fund Solutions would explore all options available in response to the draft warning notice, including engaging with the FCA over a settlement, as well as challenging any warning notice.
It also said any liabilities relating to the Woodford issue will be confined to Link Fund Solutions, and that the parent company has made no commitment to fund or financially support it.
Previously, Link Group said it does not agree with the regulator’s view that the company should be fined,
Initially, the FCA said Link Fund Solutions may be liable for a redress payment after a Canadian company, Dye and Durham, submitted a takeover bid for Link Group last week.
The FCA approved the takeover, subject to a condition that D&D commit to make funds available to make up any shortfall in Link’s ability to pay any redress imposed.
Fund collapse
As the authorised corporate director of Woodford Investment Management, Link has been under investigation by the FCA since the collapse of the Woodford Equity Income fund.
The fund, once worth £10bn, began struggling with a wave of redemption requests in 2019.
After a scramble to sell shares to improve the fund’s liquidity, Link announced in October of that year that the fund would be wound down and Neil Woodford fired.
Thousands of investors saw their money trapped in the suspended fund and lost considerable sums as a result.
At the point of its suspension, the fund was £3.5bn in size - though it had shrunk to £2.9bn by the time capital started being repaid.
So far £2.5bn has been paid out as the fund gradually sells its holdings, with investors still waiting for £140mn to be returned.
Regulator pressure
The regulator has come under pressure, most recently from MPs, over the speed of the investigation.
In May last year, FCA chief executive Nikhil Rathi told the Treasury Committee the investigation would be completed by the end of 2021 but was unlikely to be published that year.
In the statement today, the regulator said: "The FCA understands that investors will be keen to understand the impact that this may have on them, including any potential to receive redress, and will provide an update as soon as it is able to do so."
In June this year, two law firms united to take Link to court over its handling of the fund’s demise.
Leigh Day and Harcus Parker submitted a group litigation order at the High Court on behalf of more than 3,000 investors in the fund.
The claim alleges that Link breached the FCA’s rules in its performance as the authorised corporate director of the Woodford Equity Income Fund, saying it failed to ensure that the fund was managed in accordance with the Collective Investment Schemes sourcebook of the FCA handbook.
The firms believe the claim will be worth more than £100mn.
Link denies the claims.
sally.hickey@ft.com
