The Financial Conduct Authority said the administrator of Neil Woodford’s failed fund could face a penalty of up to £306 million ($358 million) over its collapse, a first indication of the likely findings from the UK regulator’s longrunning probe.
The Financial Conduct Authority “is likely” to require Link Fund Solutions -- the entity that managed the Woodford fund -- to “pay a financial penalty and/or consumer redress,” the regulator said in a statement Monday, although it noted that the decision was not final and that LFS could challenge it.
The estimated redress payment reflects the regulator’s “current view” of Link’s failings in managing the liquidity of Woodford’s Equity Income Fund. The regulator opened an investigation into the circumstances relating to the suspension in June 2019.
Link Fund Solutions was the fund administrator on the LF Woodford Equity Income Fund, which started to be liquidated nearly three years ago. Woodford froze the vehicle in mid-2019 because he couldn’t meet clients’ withdrawal requests, trapping £3.7 billion of investor funds.
He was ousted as manager of the fund in October of that year, and announced he would shutter his investment firm, a stunning fall that counts as one of the most dramatic in London’s financial history. Subsequent asset sales have seen investors recoup some of their money but they are still about £1 billion out of pocket.
Link Administration Holdings said in a statement Tuesday that LFS “does not agree with the FCA’s view” and “will explore all options,” including challenging any decision. “Link Group considers that any liabilities relating to the Woodford Matters will be confined to” LFS.
Canadian Deal
The potential penalty could derail Toronto-based Dye & Durham Ltd. proposed acquisition of Australia’s Link Administration Holdings Ltd. The FCA said its approval of Dye & Durham’s acquisition of Link is “subject to a condition to commit to make funds available to meet any shortfall” within the fund administrator to cover potential payments.
Dye & Durham is assessing the impact of that demand made by the FCA, according to its separate statement Monday. If it can’t accept those terms, it said, then the companies might not be able to close the $1.7 billion deal, which had already been repriced lower after the sharp selloff in technology stocks.
The firm “must now decide whether to proceed with the transaction at a higher effective purchase price, renegotiate with Link and revise the terms of its offer to account for the incremental liability, or walk away from the deal,” BMO Capital Markets analyst Thanos Moschopoulos said in a note.
Shares in the Canadian company dropped 2% to C$14.43 in Toronto on Monday. Link shares fell by about a fifth on Tuesday in Sydney.
Read more: Dye & Durham Agrees to $1.7 Billion Deal For Australia’s Link