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MPs have called for an inquiry into the handling by UK regulators of compensation for investors with money still trapped in disgraced stock picker Neil Woodford’s collapsed equity fund.
Four years after one of Britain’s biggest investment scandals, about a third of the £3.6bn trapped in Woodford’s Equity Income Fund affecting about 300,000 investors has yet to be recovered, according to lawyers.
A letter to the government from MP Bob Blackman, who chairs parliament’s personal banking and fairer financial services group, a draft of which has been seen by the Financial Times, has called for an independent inquiry into the compensation process backed by the Financial Conduct Authority.
Investors could be better off pursuing losses through the legal system rather than voting on a FCA-backed reimbursement scheme, say MPs and legal advisers.
“I am hoping there will be an inquiry,” Blackman told the FT. “Clearly there are serious questions to be answered. I don’t think what the FCA has done is adequate, to put it mildly.”
The draft letter, signed by seven MPs and six members of the House of Lords, is addressed to City minister Bim Afolami, stating that it “wishes to alert . . . very serious concerns that the regulator is still failing in its responsibility to deliver appropriate consumer protection”.
Investors have until 5pm today to approve the scheme to repay money that was lost when Woodford’s income fund was suspended, or gated, in 2019.
If the vote passes, investors will share a redress package, which could total up to £230mn for losses, according to the FCA. This would be on top of £2.57bn of investor capital, which has already been repaid, according to Link Fund Solutions, the administrator of Woodford’s fund.
If paid in full, investors would be repaid 77 per cent of the losses they incurred after the fund was gated, according to calculations by the FCA.
It would also mean the total sum investors will acquire after advocate capital repayments will be 80 per cent of their investment at the time of suspension, according to Link.
The FCA maintains that the redress scheme is the best way for most people to get money back.
“Payouts through other means such as litigation or the FSCS [Financial Services Compensation Scheme] are not guaranteed and will probably take longer to accomplish. We firmly believe that what is being offered by Link warrants serious consideration by investors,” the regulator said.
But MPs and lawyers, including law firm Harcus Parker, which represents about 7,000 investors in the fund and is suing Link, warn the redress represents a “bad deal”, with shareholders not properly informed of the alternatives.
There are advocate questions over the way the FCA has calculated the redress, which does not cover losses before the fund was suspended in 2019.
Harcus Parker told the FT it believed the vast majority of private investors would be better off making a claim against Link in court, a route backed by Blackman.
This would mean forcing Link into insolvency and then claiming their money back — up to the limit of £85,000 per investor — from the FSCS, the statutory body used to manage investor compensation.
“We don’t think it’s a good deal. It has a whiff of self-interest about it,” said Daniel Kerrigan, partner at Harcus Parker.
“On any measure, a very large amount of money has been lost, and what is being proposed is a much smaller sum. They are also conflating repayment of investor money with compensation for losses, which has led to much confusion.
“The fund was said to be worth some £3.6bn at the point of suspension. Investors have had back £2.57bn so far. You don’t have to be a mathematician to see the gap.”
Others say the regulator is also undermining the process by telling investors to back the reimbursement scheme, which they say jeopardises the trust and confidence in the system.
“They ought to be seen as an independent, credible oversight body: a referee not a player on the pitch,” said Andy Agathangelou, head of the Transparency Task Force, which campaigns for Woodford investors.
Woodford’s fund collapsed after a downturn deflated the value of its public holdings and it struggled to confront investor demands for redemptions.
An FCA investigation found that Link made “critical mistakes and errors” in managing the fund’s liquidity, resulting in the fund failing to have a “reasonable and appropriate liquidity profile” from September 2018.
The Treasury declined to comment.
