SCM Direct founders Alan and Gina Miller (pictured) are demanding the Financial Conduct Authority bans all funds with daily or weekly dealing from pouring any more money into unquoted investments in light of the Neil Woodford saga.
The urgent request to the regulator was unveiled as part of a five-point action plan published by the husband and wife duo on Tuesday in honour of their wealth management firm’s 10-year anniversary. The plan also calls for “truly independent” fund boards, similar to the US, and for fund groups to be named and fined for failing to disclose Mifid costs and charges.
Rarely traded stocks should also be banned
The Millers said any unquoted investments, including private equity or unlisted shares or directly held physical properties, should be banned from daily and even weekly dealing funds. Fund managers should also be banned from investing in listed shares which are seldom traded, a description matching many of the small-cap securities found in Woodford’s Equity Income fund.
And there should be rules in place preventing fund managers from using the creative methods Woodford employed to skirt around the FCA’s 10% limit on holding unquoted companies in a Ucits fund.
“It is a disgrace that the FCA has not changed rules allowing companies ‘seeking’ a listing within the next 12 months or companies listed on exchanges even if rarely traded, to be somehow treated as if they were listed, ‘eligible’ assets i.e. liquid when they are patently illiquid,” they said.
‘Systematic and widespread failure’ under Bailey
The couple also took aim at City watchdog boss Andrew Bailey who has had several major scandals occur on his watch since assuming the office in July 2016.
The regulator’s “whitewash report” of the RBS/GRG scandal, the gradual softening of the Asset Management study which went from “hard hitting” in 2015 to a “weak final report”, as well as its unresponsiveness in the London Capital Finance scandal and when dealing with the Guernsey Stock Exchange over several unlisted holdings belonging to Woodford, “all amount to clear evidence of a systematic and widespread regulatory failure under the stewardship of the FCA’s chief executive, Mr Andrew Bailey,” the pair said.
As such the government must launch an independent “root and branch review” of the FCA in order “to end the dismal treatment of UK retail fund investors”. It should also implement new whistleblowing legislation similar to that rolled out by the Securities Exchange Commission in the US, “where whistle-blowers are encouraged, even financially rewarded”.
The FCA is “inferior” and falling behind regulators across the pond in several areas, according to the Miller’s. It does not mandate that funds publish their full holdings within 60 days of each quarter end or have “truly independent boards”, both issues that they believe need to be remedied.
Concluding the report they said: “A French philosopher once said ‘every nation gets the government we deserve’. What have hard working UK investors done to deserve the present FCA, and be treated as second class consumers compared to their US peers?”
