Long ReadApr 26 2023

Woodford saga set to continue despite redress plan for investors

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Woodford saga set to continue despite redress plan for investors
Neil Woodford was formerly the manager of the Woodford Equity Income Fund. (Jonathan Atkins/Handout via Reuters/File Photo)

Almost four years since dealings in the Woodford Equity Income Fund were suspended, the Financial Conduct Authority announced a plan earlier this month to deliver what it described as “significant” redress to Woodford investors.

The redress of up to £235mn is to cover losses to more than 300,000 investors, as a result of Link Fund Solutions’ failures as the authorised corporate director in managing the liquidity of the Woodford Equity Income Fund.

The regulator says it considers LFS made “critical mistakes and errors… with the result that the fund failed to have a reasonable and appropriate liquidity profile from September 2018”.

According to the FCA, the maximum £235mn redress sum comprises:

  • LFS's assets of cash and capital resources of around £47mn;
  • Its relevant insurance cover of up to around £48mn; and
  • The sale of Link Group’s Fund Solutions business generating up to around £140mn.

The agreement by LFS to provide redress is subject to the sale being completed, as well as investors’ and court approval of a scheme of arrangement.

We will continue to push to get the full compensation that they are entitled to.Daniel Kerrigan, Harcus Parker

So as AJ Bell’s head of investment partnerships Ryan Hughes notes, there are still “further hurdles to overcome”.

“Although, given the public announcement, it must be assumed that the FCA have a strong level of confidence that the sale of the business will go through, and it would be a surprise if Woodford investors didn’t approve the deal given how long this sorry saga has dragged on for,” he says.

The saga continues

In its announcement of the redress plan, the regulator says LFS will agree to settlement of the FCA’s investigation if the sale is completed and the scheme becomes effective.

“The findings of the investigation, including an analysis of how the findings amount to breaches, will be published at that stage. This will end the FCA’s enforcement case against LFS and enable payments to investors to be made,” the regulator adds.

But although the FCA has established steps to ending its enforcement case against LFS, the Woodford fallout is not being consigned to history yet.

In its announcement, the regulator says other parties are under investigation regarding the circumstances that led to the fund’s suspension.

These investigations continue, the FCA says, and will consider any further failings that may have negatively impacted investors.

“While investors will likely be pleased to see progress from the FCA in respect of Link, the FCA has made it clear that there are other parties that remain under investigation,” says Hughes. “As a result, we can expect this to drag on for some time to come as the FCA moves onto the next phase.