The Financial Conduct Authority (FCA) declared it is “likely” to seek to require Link Fund Solutions (LFS) to pay a financial penalty or a consumer redress worth up to £306m following its failings to manage the liquidity of the Woodford Equity Income fund in 2019.
The announcement provides an insight into the progress of the investigation and follows the proposed takeover of LFS by the Australian technology provider Dye and Durham.
Having approved the acquisition, the regulator said it was subject to a condition to commit to make funds available to meet any shortfall and to cover any redress payments that Link Fund Solutions may be required to make.
The FCA-determined redress 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 and is based on misconduct rather than losses caused by fluctuations in the market value or price of investments, said the regulator.
Ryan Hughes, head of investment partnerships at AJ Bell, welcomed the development as a first sign that the investigation into the collapse of the fund is perhaps coming closer to completion.
“However, the FCA has made it clear that other parties remain under investigation and that Link could appeal any penalty,” he said.
“How any payment would be made to impacted investors is as yet unclear and no doubt the FCA will want to complete its wider investigation first. There will likely be further developments, particularly given the breadth of the investigation, but this news may be a sign that pressure from the Treasury earlier in the year has finally sped things up.”
The whole saga began in 2019, when Woodford’s flagship equity fund could not meet redemptions due to a large amount of unlisted and hard-to-trade holdings. The fund was close to breaching FCA rules around the amount it was allowed to hold in such companies, forcing it to suspend dealing while it attempted to sell some of its holdings.
In October 2019, the fund managers was eventually axed by Link and the wind-down process started. It remains ongoing.
“Investors who have waited so patiently will be hopeful that some form of financial redress may be forthcoming and they can begin to draw a line under this sorry saga,” concluded Hughes.