The All-Party Parliamentary Group on Fairer Financial Services (APPG) has criticised the Financial Conduct Authority’s (FCA) role in supporting Link Fund Solutions’ redress scheme for trapped Woodford investors, following a High Court decision to approve the scheme on Friday (9 February).
Following the judgement, Link has said it expects to begin compensation payments in April, should no appeals be made against the decision.
Since the announcement was made on Friday (9 February), members of the APPG have criticised both the terms of the scheme and the FCA’s role in backing it, echoing arguments made during the scheme’s hearing by Transparency Task Force campaign group.
The APPG chair, MP Bob Blackman, said: “The controversial and fiercely contested scheme of arrangement was shaped, negotiated, announced and publicly advocated for by the FCA, the UK’s principal financial regulator, which has a specific remit to secure ‘an appropriate degree of protection for consumers’.
“It is unclear to me why the FCA backed the scheme, which does not appear to be in the interests of Woodford investors, consumers as a whole, or UK PLC. There are also serious concerns about some of the claims made by the regulator about the scheme – for instance, that investors will recover 77 pence in the pound, or that it offers better recoveries than those available by other means.”
He added that due to these concerns, the APPG is “urgently” seeking meetings with the FCA’s senior leadership, and with economic secretary to the treasury MP Bim Afolami.
“We are keen to establish why the regulator has acted in this way and explore what defensive measures are now needed to prevent anything similar happening again,” Blackman said.
Andy Agathangelou, founder of Transparency Task Force, is also chair of the secretariat to the APPG on Fairer Financial Services.
‘Failure in regulation’
Justice Richards considered the arguments put forward by Transparency Task Force, but ruled that rather than arbitrarily taking away rights to access the FSCS and FOS, scheme creditors had overwhelmingly voted to settle their claims against LFSL and as a result there are no longer any claims that can be notified to FOS or paid out of the FSCS.
Link’s compensation scheme had been approved by 93.7% by number and 96% by value of the 54,000-strong scheme creditors at a scheme meeting in December.
Noting that the FCA supports the scheme, the court concluded that there were no grounds to prevent the vote from being respected.
Fellow APPG member Baroness Bowles of Berkhamsted, who is also on the Lords Financial Services Regulatory Committee, said: “When the public chooses investments based upon the protection of the FOS and the FSCS guarantee, it is the duty of the state to honour those protections.
“Clarity in FSMA protection is vital to maintaining public confidence in the UK finance industry and the FCA’s statutory objective of protecting them from bad actors. The FCA told the court it inspected Link and Woodford Fund only a year before the spectacular collapse, and concluded no intervention was necessary.
“That is self-evidently a failure in regulation. The FCA then negotiated a deal with Link over several months, announced and then promoted the deal to effect the Scheme. The intention was to prevent further scrutiny by the courts and the FOS.
“I’m keen to get to the bottom of what has happened here, and why – it seems rapaciously regressive for a regulator to be deliberately unravelling part of the fabric that has helped maintain confidence in the financial services industry.”
Responding to the comments, an FCA spokesperson said: “We are pleased that the court has decided to approve the scheme. We understand that LFS expect to start making payments to scheme creditors as soon as possible, if there is no appeal of the judge’s decision.
“Investors voted overwhelmingly in support of the scheme. The small minority have now had their representations fully considered by a judge, who did not agree with their arguments.”
Dame Siobhain McDonagh MP also raised concerns over the lack of clarity surrounding the FSCS, questioning why ‘rock solid’ protections were removed.
The Transparency Task Force are considering an appeal over the ruling, which would need to be submitted by 4pm on 23 February.