The saga of the Woodford Equity Income Fund collapse continues, years after the fund was suspended in 2019, as the regulator has issued warning notices against Neil Woodford and Woodford Investment Management Ltd for what it describes as a "defective and unreasonably narrow" understanding of his responsibilities for managing the fund.
The Financial Conduct Authority also issued a final notice and significant financial penalty against Link Fund Solutions Ltd, which as authorised corporate director failed to act with due skill, care and diligence in its management of Woodford Equity Income Fund; failed to manage the liquidity of the fund; and failed to properly oversee Woodford Investment Management.
Many of those seeking redress from the collapsed fund, and interested observers, may be wondering what an FCA warning notice is – after all, given that the fund has been collapsed since 2019, why is a ‘warning’ only being given now?
An FCA warning notice is one of a number of enforcement tools at the disposal of the authority, which, together with the Bank of England and Prudential Regulation Authority, regulate the financial services industry in the UK through a statutory regulatory framework, primarily stemming from the Financial Services and Markets Act 2000 (FSMA).
Within the FCA’s board sits the regulatory decisions committee (RDC), comprised of financial services experts, which serves as an independent decision-making body responsible for overseeing regulatory enforcement and supervisory actions.
Under FSMA, the RDC are required to give statutory notices when taking certain actions or making certain decisions – usually a warning notice or decision notice – ahead of a final decision and enforced disciplinary actions and financial penalties.
The FCA use these earlier notices to put pressure on the subject of an investigation to co-operate and settle with them.
What a warning notice means
A warning notice is a stage in the FCA’s enforcement process – but do not fall into the trap of believing that a warning notice is an early stage.
In fact, a warning notice will only be issued following the end of a detailed FCA investigation (which will often take years) when, if there has been no resolution, the FCA investigation team recommend to the RDC that a warning notice be issued.
If the RDC agrees, it will issue the notice informing the subject and setting out the disciplinary action the FCA proposes to take and why.
Notably, the warning notice is published on the FCA website and so is not a private process.
The subject of the investigation will receive any of the relevant materials that led to the warning notice and has the opportunity to respond to the RDC, both written and orally. The RDC will consider the representations and any FCA response to them when making a decision.
If the RDC does decide to take further action, it will then issue a decision notice to the subject, who can either accept the decision or refer the matter to the Upper Tribunal – a judicial court independent of the FCA who handle appeals against certain decisions made by the FCA, as well as against other bodies including the PRA and The Pensions Regulator.
