Recent announcements relating to Woodford Equity Income Fund (WEIF) warrant close attention:
- The FCA has announced a potential £235 million settlement with Link Financial Services (LFS)
- The settlement, if approved by WEIF investors, will be used to pay redress
- The scheme, if approved, will protect LFS from further claims
The FCA is effectively urging investors to approve the scheme and is stating that legal redress claims promise an unrealistic return since FSCS compensation would not cover investment losses. This statement is confusing, since redress claims are claims for damages, not for investment losses.
The regulator underlines that its scheme will result in a 77% recovery for WEIF investors versus the NAV held at the point of the fund’s suspension in 2019. It fails to point out that 71% of that recovery has been from asset sales, and that the scheme will cover just 6% more, which represents less than a quarter of the £1 billion lost by investors since the suspension.
There appears to be a fundamental conflict between the FCA’s role in protecting consumers and its apparent desire to avoid creating a claim on the FSCS, which would ultimately be borne by the financial services industry via the FSCS levy.
One positive note is that the regulator continues to investigate other parties to this mess, suggesting that there may be further action to come from the FCA in due course.
What is clear is that the FCA scheme is problematic for the legal redress schemes. Some of these are effectively focused only on the LFS action, while others have a second or third string to their bow, such as Hargreaves Lansdown and possibly even Northern Trust.
The law firms are taking stock, and Leigh Day has now closed its claim to new applicants. Accordingly, our endorsement of that claim is no longer relevant and has been withdrawn.
At this stage, it is prudent for affected investors to await further information from the FCA.