(L-R) Eve Maddock-Jones, editor of Investment Week and Cristian Angeloni, deputy and special projects editor
On Tuesday (05 August), the long-awaited conclusion of the Financial Conduct Authority’s enforcement action in the Neil Woodford saga came through, seeing the disgraced fund manager banned for life from the industry in which he built his name. At least in regulated activities.
The FCA has imposed a cumulative £46m fine on the man himself and his former firm, Woodford Investment Management (WIM), over failures in managing the former Woodford Income Equity fund (WEIF), but both decisions have been referred to the Upper Tribunal.
FCA bans and fines Neil Woodford and Woodford IM £46m
The FCA's full report is damning, stating that "Woodford is not a fit and proper person to perform regulated activities associated with managing open-ended funds and any senior management or significant influence function on the basis of his lack of competence, capability and reputation".
WIM came back hard at the FCA's claims, stating that it "strongly disagrees" with the regulator's decision and reiterated its argument that the blame falls to Link and its regulatory framework, which has long said Woodford was operating within.
As the decisions head to court, this means the ban and fines don't come into effect until both cases are heard, and only if the ruling goes in the FCA's favour.
Woodford Investment Management hits back at FCA's fines alongside ban for Woodford
But even if the ban started immediately, Woodford himself is still very much active in the retail investment space, orbiting outside the regulated inner circle with his W4.0 platform.
Woodford can continue to keep selling his stock tips to customers for up to £100 per month (up from the original £70 when the platform was launched in June).
As extensively covered by Investment Week's own Cristian Angeloni, W4.0 is outside of the FCA's remit and appears to be not in breach of this week's decision because Woodford is not managing anyone's money directly or indirectly.
He is operating in a grey area of being potentially banned by the regulator from doing anything official with people's money, but can be paid to wax lyrical about what people should invest in.
We are not suggesting what he's doing is or should be regulated and we are also not promoting that the FCA should become some totalitarian overseer striking people off licensed or otherwise, or even for it to create some ad hoc rules against certain individuals or firms.
Platforms throw spanner in the works for Woodford as portfolio upload function not allowed
But the decision this week is not the end of the FCA's battle to deal with the mess that has become Neil Woodford. Its next steps here will be significant when the former is trying to clamp down on online financial promotions or ‘finfluencing', which seems to have become Woodford's ‘loophole' to continue to make money in a space he was deemed unfit to work in.
The FCA confirmed to IW that it had the same questions about his new venture, and told us it was "engaging with Mr Woodford to satisfy ourselves that his activities do not require our authorisation".
If he does, "he'd need to apply to us or risk breaking the law", the regulator explained.
The FCA added: "We'd take our decision to ban into account when considering any application for authorisation."
Now, while Woodford may have been called a finfluencer in the press amid his slow reintegration to UK financial society with his ‘Woodford Views' blog and similarly-named YouTube and Instagram pages – which posted updates on Thursday (7 August) for the first time since W4.0 was announced – this is not the neatest term for him.
Friday Briefing: Woodford is right – Link has a lot to answer for
The FCA defines a finfluencer as: "Persons who may not be authorised by the FCA to provide financial advice yet share their opinions and recommendations on digital platforms. Consumers show high levels of trust in finfluencers, but their advice can sometimes be misleading."
We spoke to a series of regulatory consultants about how they viewed Woodford in context of this term and they said that he is a sophisticated investor, and the aforementioned term is colloquially applied to social media influencers who promote investments, or even offer investment advice, without the necessary authorisations and guidance (or sometimes skills and experience) which should go with these types of activities.
We contacted Woodford with a series of questions about whether he categorises himself and his new venture as finfluencing, but he did not respond.
Now, obviously just because there is no licence doesn't mean that people have an all clear to do or say what they want, breaking the law is breaking the law, stamp of approval or not, and the FCA has shown that it is willing to throw the book at those in breach of those rules.
Last year, it charged nine individuals in relation to an unauthorised foreign exchange trading scheme on Instagram.
The series of experts we spoke to in a bid to understand how the Woodford/FCA/influencer Venn diagram merged pointed out that there are a number of exemptions to the relevant FCA regimes which may apply: For example, journalists and publishers of periodicals are in some circumstances allowed to publish material that assesses the merits of individual investments without breaching FCA rules.
Woodford 4.0: Why he must leave retail investors out of latest comeback plan
Likewise, certain exemptions could apply if the service was offered from overseas, and W4.0 provides its service from the UAE, where IW understands that Woodford himself permanently resides and runs his business from.
The UAE requires anyone providing financial information to their followers, which includes recommendations not just advice, to apply for a licence with the Securities and Commodities Authority. IW contacted Woodford to ask if he had applied for, or retained such a licence, but he did not respond.
So, this a long way to say that Woodford isn't quite what we think of as a finfluencer, but he certainly seems to sit at least somewhere in the arena and how this interacts with the FCA's decision this week will set a precedent for the future.
As one consultant put it to us, given the FCA's criticism of Woodford's understanding of his own responsibility to those for whom he managed investment, and his being adamant to expose retail investors to highly illiquid investments, they may well be concerned by a product which allows individuals to replicate his strategies.
In terms of optics, the FCA has worked hard, alongside other national regulators, to crack down on finfluencers and unauthorised financial promotions as well as ensuring that when investments are promoted through social media, the proper warnings and guidance are included.
RGL adds further 1,500 Woodford investors to lawsuit against Hargreaves Lansdown
More than likely, in the regulator's view, a subscription-based periodical and podcast from Woodford wholly beyond their supervision will not sit well with its work, especially when they have been highly criticised in the handling of the whole sorry series of events.
The blame of the Woodford saga is split between him, Link and the FCA, but in our view, there is a huge level of responsibility on the person whose name was above the door and used it to acquire investors' money.
And many of those people still have questions six years on from the WEIF collapse about why what happened did occur, and are unsure what money, if any, they will get back, while Woodford himself is now able to utilise his notoriety in an attempt at a redemption arc.
Beyond the regulatory outcome of the Woodford saga, the stakes are high for how the FCA intends to deal with these types of situations. The case of W4.0 could create a precedent where people the FCA deems unfit and not proper to manage people's money can still bank on their name to gain a backdoor into financial services without requiring any form of authorisation from the regulator.
This article was first published as part of the Friday Briefing series, which is available exclusively to Investment Week members each week. Sign up here to receive the Friday Briefing to your inbox each week.
