FCA first alerted to concerns over Neil Woodford’s business in 2015

The Financial Conduct Authority was warned about problems within Neil Woodford’s investment business less than a year after it opened in 2014 but did not intervene for almost another two years, according to several people briefed on the process.

Woodford’s recently announced plans to relaunch his career come as the regulator faces pressure from politicians and campaigners critical of its oversight of the stockpicker’s failed business — and the time it is taking to investigate his downfall.

The onetime star fund manager was forced to suspend his flagship £3.7bn investment fund in June 2019, trapping the savings of hundreds of thousands of investors in the biggest British investment scandal for a decade.

But concerns over its investment strategy were raised within the first year of its operation, when two of the company’s founding partners — chief operating officer Nick Hamilton and chief legal and compliance officer Gray Smith — resigned after falling out with Woodford and chief executive Craig Newman.

Given their senior roles in such a high-profile business, Smith and Gray were asked to discuss the reasons for their departures in exit interviews with the FCA in January 2015. The FCA did not act on the information they presented, according to those familiar with the regulator’s dealings with the company.

The four founders had clashed openly over the company’s compliance culture and the level of due diligence carried out on Woodford’s investments in private companies, according to former WIM staff members.

Hamilton and Smith were especially concerned with the amounts being committed to unlisted companies.

In response to FT questions over the exit interviews, the FCA said: “Where we receive information relating to concerns about firms or individuals we follow up and take action where appropriate. But we do not conduct our supervision of firms or individuals in public.”

Smith and Hamilton declined to comment. Several former staff at WIM said they were unable to talk publicly about their departure from the company.

A spokesman for Woodford said: “It is true that the FCA did not approach us after the interviews, and I am sure would have approached us had there been any concerns raised from the interviews.” 

The spotlight on the FCA comes at a tricky time for the regulator as it seeks to draw a line under a spate of industry controversies during the tenure of its previous chief executive Andrew Bailey, now governor of the Bank of England.

A recent review of its handling of the £236m collapse of mini-bond issuer London Capital & Finance found repeated failures by the watchdog to act on external warnings. “The FCA’s handling of information from third parties . . . was wholly deficient,” the review concluded. “This was an egregious example of the FCA’s failure to fulfil its statutory objectives”.

Bailey took over as head of the FCA in 2016, after the contract of his predecessor Martin Wheatley was not renewed, and led it during both the Woodford and LCF collapses.

In February he told MPs on the Treasury select committee that when he joined the FCA it had “no system for extracting information” from warnings or tip-offs. “I’m not hiding things that went wrong,” Bailey said. “There should have been a mechanism to alert supervision and enforcement.” 

Nikhil Rathi, the FCA’s current chief executive, and Charles Randell, its chairman, will be quizzed by the committee on Monday about its handling of LCF.

While giving evidence to parliament in June 2019, Bailey said the FCA’s first intervention with WIM was at the end of 2016 when the regulator spotted a conflict of interest in the business’s valuation process. By this point WIM managed almost £10bn and was the UK’s sixth best-selling fund manager.

The FCA has been dogged by questions over its oversight of WIM having approved the business to start trading just months after it found funds managed by Woodford at his former employer, Invesco Perpetual, exposed investors to higher levels of risk than they had been led to expect.

Invesco Perpetual was fined £18.6m for the breaches, which also involved several funds not managed by Woodford, in what was a record penalty imposed on a UK fund manager. 

Woodford is still approved by the FCA to act as an executive director of an investment company, having updated his status in December 2019.

Ten days ago Mel Stride, chair of the Treasury select committee, called on the FCA to conclude its investigation into WIM’s implosion, saying: “As the FCA’s investigation still continues over 18 months after the fund was suspended, the reports of the new fund may understandably be of concern to investors who previously lost out.”

Owen Walker’s ‘Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money’ will be published by Penguin on Thursday