The £3.7bn Woodford Equity Income fund was suspended on Monday (June 3) meaning investors cannot sell the fund and take their cash out. They can not invest in the fund either.
In a statement published today (June 5) the regulator stated: "The FCA is notified of the decision to suspend funds it does not approve them.
Suspension is not an outcome the FCA seeks to avoid if it is in the best interest of fund investors. Suspensions are recognised as a legitimate tool internationally."
The fund's suspension came following a sustained period of under performance and investors pulling £9m from the fund every working day in May.
Mr Woodford had tried to provide extra liquidity to his fund by listing some of the unquoted investments on the Guernsey Stock Exchange, which complied with the rules forbidding an open-ended fund from having more than 10 per cent of its assets in unquoted companies.
The regulator stated it played no role in the listing of the stakes in Guernsey.
It stated: "The FCA expects any decision to list a fund’s assets to be in compliance with the relevant rules required by the UCITS Directive to ensure the fund's assets remain sufficiently liquid and diversified.
"Under EU rules a UCITS fund is allowed up to 10 per cent of the portfolio to be invested in transferable securities which are not dealt in an ‘eligible market’.
"The FCA was not informed, and would not have expected notice, of any decision to list the fund’s assets prior to their listing."
Hargreaves Lansdown removed the fund from is buylist on Monday, followed by the £552m Woodford Income Focus fund, which was cut from the list today.
Dealing in the Income Focus fund has not been suspended and investors can still buy and sell it.
But in a note to clients, Hargreaves Lansdown director of research Mark Dampier said: "We have made the decision to remove the Income Focus Fund from the Wealth 50 as we would prefer to see a resolution to the dealing suspension of the Equity Income fund before making a decision on whether the Income Focus fund should continue to be on the buylist."
The Income Focus fund has lost 21 per cent over the past year, compared with a 5 per cent loss for the average fund in the IA Specialist sector in the same time period.
Charlie Parker, chief executive of consultancy Albemarle Street Partners, said: "For two decades Neil has understood that he has to take a fundamental long-term view on what he believes in and tolerate periods of significant underperformance to leverage these opportunities.
