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LONDON (Reuters) – Britain’s markets regulator is facing a backlash from retail investors in a collapsed fund once managed by former star fund manager Neil Woodford over its endorsement of a redress scheme some label grossly unfair.
The Financial Conduct Authority (FCA) has said Link Fund Solutions (LFS) made “critical mistakes and errors” while overseeing the Woodford Equity Income Fund (WEIF), which was suspended in 2019 after over-sized bets on illiquid assets, trapping around 300,000 investors.
But it has also advised investors to accept LFS’s settlement proposal of up to 230 million pounds ($288 million) – a fraction of the 1.0 billion pounds some investors and law firms are demanding – rather than face lengthy and costly court battles.
The row comes five months after the FCA pledged to draw a line under decades of mis-selling scandals with a new Consumer Duty to protect customers from unfair practices and instil fresh confidence in British financial services.
Days before the outcome of a vote is announced on LFS’s proposal, that seeks to settle its liabilities, some say confidence in the FCA and consumer protection has been shaken.
“I now feel much less safe,” said Margaret Woodward (NASDAQ:WWD) in an impact statement published by the Woodford Campaign Group, an investor group. “I have withdrawn many other investments to cash ISAs (tax-free savings accounts) and would be much less likely to invest in the future.”
The failure of the WEIF, which once managed more than 10 billion pounds, sparked an FCA investigation, three investor lawsuits against LFS and one against investment platform Hargreaves Lansdown, which promoted the fund.
But some investors are cross the FCA is endorsing a scheme that, if approved, will block them from seeking greater redress via the Financial Ombudsman Service or up to 85,000 pounds from the industry-funded Financial Services Compensation Scheme (FSCS), the fund of last resort when regulated businesses fail.
VOTING COMPLICATED
They also say the scheme has been poorly explained, the voting process too complex – some say they struggled to demonstrate they had a right to vote – and feel coralled into a settlement they say is designed to put industry interests first.
“We are told that there are regulating authorities in place to detect and deal with rogue traders and that if we are treated unfairly, there are independent authorities to handle such complaints and ensure we are not out of pocket,” said David Crowther, another Woodford investor.
“It has become clear … there is no real investor protection at all,” he added in an impact statement seen by Reuters.
The FCA has said LFS’s proposal does not reflect compensation that might be owed by others over potential wrongdoing – and that “multiple parties” remain under investigation over events that led to the WEIF suspension.
“This redress scheme offers the quickest route for redress for the vast majority of people,” the FCA said. “Payouts through other means such as litigation or the FSCS are not guaranteed and will likely take longer to achieve.
“We firmly believe that what is being offered by Link warrants serious consideration by investors.”
LFS did not have an immediate comment. But the company has said that its proposal, which will only be approved if 75% of investors by value and 50% by number vote for it, will allow it to distribute to investors the maximum amount possible in the shortest possible time.
($1 = 0.7978 pounds)
