A law firm representing clients trapped in the former Woodford Equity Income fund has told the Financial Conduct Authority better protections are needed for investors using platform buy lists and model portfolios.
In feedback to the FCA’s consultation on the consumer investment markets, Leigh Day said platforms should any signal commercial arrangements that exist with an asset manager when one of their funds is included on a best buy list. Additionally, platforms should declare the amount of a fund held by its in-house funds, the law firm said.
The FCA’s call for input into consumer investment markets was announced in September, although there was some scepticism in the investment industry about whether the consultation would result in any tangible change. The consultation closed on Wednesday.
Leigh Day first announced it was investigating a class action against Hargreaves Lansdown in October 2019. The D2C platform giant came under fire in the aftermath of the Woodford Equity Income fund suspension in June 2019 given it had championed the fund despite alarm bells ringing over the fund’s liquidity.
Leigh Day now represents over 2,000 investors trapped in the fund, which was rebranded LF Equity Income following Neil Woodford’s ousting by Link Fund Solutions in October 2019.
See also: Industry weary of ineffective consultations as FCA seeks to improve retail investment market
Proposed changes linked to FSMA and FSCS
Leigh Day said retail investors were being let down because, while platforms are required to manage conflicts of interest under Principles for Business 2.1, breaches are not actionable under section 138D of the Financial Services and Markets Act (FSMA).
It added that chapter 10 of the Systems and Controls Sourcebook provides inadequate protection for consumers for the same reason.
Leigh Day was also critical of the threshold for compensation under the Conduct of Business Sourcebook, which in its view “requires more than negligence”.
In terms of compensation through the Financial Services Compensation Scheme, Leigh Day raised concerns about investors being forced to make claims via their platform, rather than individually, given it is likely to officially hold the investment as nominee.
“While it is difficult to imagine circumstances in which a platform would refuse to allow investors to use its name to pursue FSCS claims, tension may be created where the investors are also in connection with the same incident aggrieved with the platform,” the feedback said.
Leigh Day therefore called for the definition of “holder” under COMP 5.2.1R to be broadened to include consumers who bought fund units or shares directly through a platform.
