The Woodford fines: will a penny ever be paid?

Last week the Financial Conduct Authority announced fines totalling £46 million against Neil Woodford and his collapsed investment firm: £40 million against Woodford Investment Management (WIM) and £5.9 million against Woodford personally. As we said at the time, the penalties represent "a drop in the ocean" compared to the hundreds of millions extracted from investors. But quite apart from the leniency the FCA has shown, a troubling question remains: will any of this money ever be collected?

Why collection looks unlikely

The latest accounts for Woodford Investment Management tell a stark story: assets of less than £30,000 against liabilities of almost £260,000 as of March 2024. This leaves an apparent £40 million shortfall that the company cannot meet on current figures.

As Cliff Weight from ShareSoc puts it: "Given that Woodford Investment Management has few remaining assets, it's questionable whether the £40 million fine will be paid in full, if at all."

Both Woodford and his firm have referred their fines to the Upper Tribunal, meaning no payment is currently due. Weight observes: "He's contesting the fine, and it may take some time to resolve. With access to legal support, there's potential for delays in the process."

Legal mechanics work against collection

The UK legal framework offers little comfort when companies cannot settle regulatory penalties. If a firm lacks sufficient assets or enters insolvency, fines often remain unpaid.

Regulators can pursue individuals through the Company Directors Disqualification Act 1986, but this won't recover the fine money. Directors' & Officers' insurance cannot cover fines levied against individuals — a deliberate policy ensuring personal accountability isn't shielded. Weight notes: "It's unclear whether the firm maintained adequate insurance cover. If it did, that might allow some of the fine to be paid. But we just don't know."

As Caroline Black, consultant at Ghersons Solicitors, notes, there appears to be "a fundamental disagreement in who's responsible to monitor and review the liquidity position of the fund." This dispute over responsibility between Woodford, Link, and the FCA will likely form the basis of lengthy Upper Tribunal proceedings.

A regulatory anomaly

The Woodford case breaks every pattern in modern UK financial enforcement. Recent comparable cases show regulatory fines typically get paid: Monzo paid £21 million for weak anti-financial crime controls; Barclays settled £42 million for money laundering failures; PwC paid £15 million for audit failings; UBS settled £29.7 million for control failures; JPMorgan Securities paid £33.3 million for client fund breaches. All these firms had financial capacity and chose settlement over legal battles.

The FCA's decision notices, published alongside last week's announcement, deliver a strongly critical assessment. The FCA concluded that "Woodford's conduct has resulted in a significant loss of reputation with far-reaching repercussions, such that he is not a fit and proper person to conduct certain regulated activities."

The enforcement gap

This enforcement vacuum risks weakening regulatory deterrence. Ian Duffield, who expects to lose £100,000 from his Woodford investment, expressed his frustration in The Times: "It's not even going to scratch the surface," he said.

The mathematics underscore the problem. Woodford Investment Management generated approximately £270 million in revenue over its lifetime. Woodford personally extracted £63 million over four years, while he and his partners withdrew £98 million in dividends before the firm's collapse. Weight highlights this disparity: "When you look at the scale of fees generated versus the fines imposed, it raises difficult questions about the effectiveness of regulatory enforcement."

ShareSoc describes the fines as "too little, far too late" and "a textbook case of a token slap on the wrist." The investor advocacy group estimates affected investors suffered £289 million in harm, yet received only £186-230 million through the Link settlement scheme — leaving up to £103 million uncompensated.

Regulatory precedent at risk

The inability to collect Woodford fines sets a concerning precedent. Unlike bank collapses where deposit protection schemes operate, fund management failures leave investors largely unprotected when firms become insolvent.

This creates perverse incentives. Fund managers can extract substantial fees during good times, withdraw profits before difficulties emerge, then leave behind corporate shells unable to meet regulatory penalties. The current system socialises losses while privatising gains.

If sanctions prove impossible to enforce, this risks undermining regulatory deterrence. What message does this send to other fund managers contemplating risky strategies?

Weight suggests the regulator could have acted sooner: "With the benefit of hindsight, one could argue the regulator might have acted sooner to safeguard funds in case penalties were later imposed." He adds: "Had the FCA acted sooner, a lot of the fallout might have been avoided."

The Woodford fines: What happens next?

The Upper Tribunal process could take years to resolve. Even if the fines are upheld, collection mechanisms remain unclear when the company lacks assets. The FCA might pursue director disqualification proceedings against Woodford, but this won't recover investor losses or unpaid penalties.

Individual accountability measures offer limited comfort. Woodford faces a ban from holding senior manager roles and managing retail funds. Yet he has already launched a new investment strategy service called W4.0, which raises questions about how any future restrictions would interact with unregulated activities.

For investors, the only remaining avenue is group litigation against Hargreaves Lansdown, which continued promoting the Woodford fund until its suspension. Weight believes this case has merit: "The legal action against Hargreaves Lansdown is more complex than the one against Link, but it does appear to have some strength behind it." However, he notes: "For some large firms, litigation is seen as just another cost of doing business. But for customers, it's about trust and accountability."

The evidence-based lesson

The Woodford fines debacle reinforces why evidence-based investing matters. Star managers can fail spectacularly, regulatory protection proves limited, and enforcement mechanisms may prove ineffective when firms collapse. Investors seeking to avoid such scandals should focus on diversified, low-cost index funds rather than backing celebrity stock-pickers.

Six years after the Woodford Equity Income Fund's suspension, the promised accountability remains as elusive as the fines themselves. For the thousands who lost life-changing sums, this regulatory failure represents a bitter final chapter to an already depressing saga.

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