The Financial Conduct Authority (FCA) today provides an update following the announcement on Monday 3 June that dealing in the units of the LF Woodford Equity Income Fund (the 'Fund') had been suspended. This statement provides additional information about the purpose of suspension, the FCA's role and to address commentary around the decision to list some of the Fund’s assets in Guernsey.
The purpose of suspension
The FCA’s rules provide for suspension in dealing in the units of open-ended funds where, due to exceptional circumstances, it is necessary to protect all the investors in a fund. A suspension should seek to protect all the investors, those who remain invested as well as those seeking to redeem, by avoiding forced sales in the assets of the fund, which might be below current values. Suspension is not an outcome the FCA seeks to avoid if it is in the best interest of fund investors. Suspensions are recognised as a legitimate tool internationally via IOSCO guidelines[1].
The firms responsible for deciding to suspend the Fund are its Authorised Corporate Director, Link Fund Solutions Limited, and its depositary, Northern Trust Global Services SE. The decision to suspend was taken on Monday 3rd June, following an increased level of redemptions that the fund was unable to meet immediately. The FCA is notified of decisions to suspend funds; it does not approve them.
We expect all firms involved to uphold their obligations to act in the best interests of all investors and to ensure the fund's assets are sold in an orderly manner. A suspension should last no longer than necessary to allow the fund to build up sufficient liquidity to meet redemptions again.
Guernsey
There has been recent commentary around the decision to list some of the Fund’s assets on the stock exchange in Guernsey.
The stock exchange in Guernsey, The International Stock Exchange (TISE), has been deemed an ‘eligible market’ by Link Fund Solutions. The UCITS Directive permits an authorised fund manager, after consultation with and notification to the fund’s depositary, to decide that a non-EEA market is eligible on the basis of various factors such as regular operation, openness, liquidity and has adequate arrangements for the unimpeded transmission of income and capital to investors.
The FCA expects any decision to list a fund’s assets to be in compliance with the relevant rules required by the UCITS Directive to ensure the fund's assets remain sufficiently liquid and diversified. Under EU rules a UCITS fund is allowed up to 10% of the portfolio to be invested in transferable securities which are not dealt in an ‘eligible market’.
The FCA was not informed, and would not have expected notice, of any decision to list the fund’s assets prior to their listing.
The FCA has been in discussions with Link Funds and TISE regarding the circumstances around the listing of certain of the fund's assets on that exchange. The FCA plays no role in the listing decisions of TISE, which is licensed by the regulator, the Guernsey Financial Services Commission.
Where the FCA believes there are circumstances suggesting serious misconduct or non-compliance with the rules it may open an investigation.