The FCA announced plans to provide significant compensation to Woodford investors

On April 20, 2023, FCA claimed that it launched plans to provide deliver significant redress to Woodford investors. The redress is to cover losses to over 300,000 investors in the WEIF as a result of failures by LFS, as the authorized corporate director (ACD) of the WEIF, in managing the liquidity of the fund.

The FCA‘s investigation found that, as ACD, LFS had responsibility for ensuring the WEIF operated with appropriate liquidity risk management and controls, and that all investors in the fund were treated fairly. The FCA considers LFS made critical mistakes and errors in managing WEIF’s liquidity with the result that the fund failed to have a reasonable and appropriate liquidity profile from September 2018.

By 1 November 2018, LFSs failure to have properly measured the liquidity of the WEIF meant that investors leaving the fund from that point onwards benefited disproportionately from access to the most liquid assets in the fund which were sold. The FCA considers that those investors who continued to hold investments in the WEIF at the time of its suspension were treated unfairly because this left them with a disproportionate share of the remaining assets which were more illiquid.

These matters give rise to concerns that LFS breached the FCA‘s Principle 2, LFS’s obligation to carry out its activities with due skill, care and diligence, and Principle 6, LFS‘s obligation to treat all customers fairly. A full account of the FCA’s concerns will be included in the Scheme documentation which will be sent to investors and creditors before they are asked to vote on the Scheme.

The FCA originally calculated the losses arising from failures in liquidity management to remaining investors as being up to approximately £306 million, which is substantially greater than the remaining assets of LFS. As a result the FCA has been in discussions with LFS‘s ultimate parent, Link Group, to reduce the shortfall as much as possible. Those discussions have led to today’s announcement.

Although the redress offered in the proposed Scheme will not provide fund investors with the full redress amount of £298 million, the FCA considers it is in the interests of the investors to be given the opportunity to consider the Scheme.

Therese Chambers, Executive Director of Enforcement and Market Oversight at the FCA, commented:

“The FCA‘s investigation raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford Equity Income Fund. LFS‘s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended. We believe the proposed Scheme offers investors the best chance to obtain a better outcome than might be achieved by any other means and it is in the investors’ interests they be given the chance to consider it.”

There are other parties under investigation in relation to the circumstances that led to the suspension of the LF Woodford Equity Income Fund. These investigations will continue.