FCA Woodford decision not ready until end of year

Regulator claims to have made ‘substantial’ progress on investigation

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The Financial Conduct Authority has written to the Treasury Select Committee (TSC) saying it is confident its investigation into the circumstances surrounding the collapsed Woodford Equity Income fund will be completed by the end of this year.

In a letter to TSC chairman Mel Stride, FCA chief executive Nikhil Rathi said the investigation had made “substantial progress” and information gathering was “nearly complete”.

The FCA said it had conducted 14 witness interviews, with all the key ones completed, and issued over 30 information requirements which has led to more than 20,000 items of relevant material from all the key parties being gathered.

Decision could take another six months

But Rathi said the regulator could not divulge further details at this stage and warned it could take a further six months at least for the regulator’s Regulatory Decisions Committee (RDC) to reach a conclusion.

Rathi said: “Like all investigations, further analysis and legal advice may well give rise to additional lines of enquiry and some witnesses may need to be re-interviewed. Subject to that as well as an opinion from expert witnesses, we are confident the investigation work will be completed by the end of this year.”

In an annex at the end of the letter, the FCA said: “In the absence of an agreed resolution, it may take a further six months to a year for a case to proceed through the RDC. If the case is brought to the upper tribunal, this would usually add a year or more for the case to be determined.”

He added: “I appreciate it may be frustrating that I am unable to provide further details regarding the investigation. However, it is necessary to preserve the confidentiality of the matters that are under consideration, in order for the investigation and any potential subsequent disciplinary process to be both credible and fair.

“In addition, we are constrained by the statutory restrictions relating to the disclosure of confidential information that is received by us.”

Treasury Select Committee responds

Responding to the letter, Stride said: “Almost two years since the FCA launched its investigation into the collapse of the Woodford Fund, we’re yet to see any results, or be told when we can expect an indication of any findings.

“Whilst it is right that all due process must be followed, the longer the investigation goes on, the greater the sense of disappointment that will be felt by those who lost out.”

Stride added that the committee expects to be updated regularly by the FCA and confirmed it will consider the findings of the investigation when they are eventually published.

FCA engaging with overseas jurisdictions 

The letter also reiterated the fact that Woodford Investment Management does not currently hold any FCA permissions that would enable it to engage in retail investment activities.

“In furtherance of our consumer protection objective, we remain in close supervisory contact with the firm and we will continue to engage with authorities in overseas jurisdictions about any potential future activities of the firm or its principals.”

Pressure has been mounting on the City watchdog to release its findings on the investigation into the collapse of Woodford’s former fund which has dragged on for the last 23 months. Around 300,000 investors remain trapped in the fund, renamed LF Equity Income, with some sitting on losses as high as 50%.

Rathi previously vowed to update the TSC by the end of May.

FCA interviews only began in 2021

Despite launching its probe mere weeks after Woodford Equity Income was frozen in June 2019, the FCA only began interviewing the main people at the centre of the investigation near the start of 2021, wrapping up discussions this month, individuals close to the matter told the Financial Times.

Those interviewed included Woodford and his long-time business partner Craig Newman, as well as higher-ups at Link Fund Solutions, the fund’s gatekeeper tasked with keeping tabs on risk and liquidity.

“According to the FT, Link Fund Solutions managing director Karl Midl and Nigel Boyling, director of the investment management supervision team, were among those interviewed. Midl was a director at the ACD, then called Capita Financial Managers, during the Connaught and Arch Cru scandals.”

Two people close the investigation told the FT the FCA is focusing on whether or not Woodford and Link acted in the interests of all its investors by reducing the liquidity of Woodford Equity Income and to what extent they may have veered from the “spirit of the rules”.

The regulator had been warned about questionable risk controls at Woodford Investment Management as far back as 2015, a year after Woodford’s fund boutique opened its doors but did not act until the end of 2016.

In a letter to the Treasury Select Committee in June 2019, former FCA boss Andrew Bailey revealed Woodford’s fund had breached Ucits 10% limit on holding unquoted companies twice in February and March 2018, at which point it instructed Link to tighten up its risk management of the fund.

Months before the fund’s suspension a third of the portfolio was in what Link classified as hard to trade assets.

US venture

The FCA’s update comes as Woodford’s comeback venture WCM Partners lays down roots in the US.

A filing on Delawares’s department of state website shows a company called WCM Partners was incorporated last week on 19 May. At this stage very little is known about the business, which is structured as a limited liability company.

Last month WCM Partners sent a document, touting an eight-stock biotech portfolio, to prospective investors from a Cayman Islands address.

The Cayman Islands General Registry shows a company called WCM Partners Healthcare (GP) Ltd and an investment fund, WCM Healthcare Fund LP, were registered last month. Neither entity appears on the Cayman Islands Monetary Authority’s (Cima) list of authorised firms.

Though the brochure fishing for interest lists Woodford himself as chief investment officer, it is unclear what his involvement in the Cayman Islands or Delaware entities exactly is.

Woodford previously unveiled a plan to use Jersey as a base in a Sunday Telegraph interview announcing his planned comeback in February. However, the Jersey regulator swiftly hit back, saying it was not a “soft touch” and the island would not be used as a “back door” for Woodford to revive his career.

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