8/20/2025 1:55:58 PM | 7 minute read

Notice in a nutshell: Neil Woodford and Woodford Investment Management Limited

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Katie Stephen

Co-Head of the Contentious Financial Services Group

Get in touch

Katie Stephen

Co-Head of the Contentious Financial Services Group

On 5 August 2025, the Financial Conduct Authority (FCA) published Decision Notices issued to Neil Woodford and Woodford Investment Management Limited (WIM) for failures in the management of the Woodford Equity Income Fund (WEIF) proposing to fine them both and to prohibit Mr Woodford from certain roles. Mr Woodford and WIM have referred the decisions to the Upper Tribunal.

Key takeaways

Although the decisions are made in the context of investment management, they have broader lessons for internal governance and dealing with emerging issues.

In terms of practical steps for firms and senior managers:

Compliance and risk are first line issues: The decision underscores the responsibility that senior managers have to inform themselves and take proactive steps to manage risks in an area of the business for which they are responsible. Those involved in the first line cannot simply leave such matters to risk or compliance – as the FCA commented: “a responsible professional should not disregard risk because he does not consider it to be part of his role”. In particular, the FCA will not tolerate a ‘pick and choose’ approach to compliance where senior managers are only willing to challenge aspects of compliance they may not like whilst taking advantage of inadequate controls that might suit them. The senior management team has a responsibility to ensure that the internal policies and controls are adequate rather than accepting them “in an unquestioning fashion”. It also illustrates the need for senior managers to work together with risk and compliance functions, other relevant parties including advisers and service providers to achieve the right balance in terms of managing the risks whilst allowing opportunities for growth.
Growth must be pursued with appropriate skill and care: Any business involved in activity that could give rise to harm to retail investors or consumers more broadly should factor in the potentially severe consequences that may arise from failures to act with appropriate skill, care and diligence and within appropriate limits and controls. A key reason for the proposed uplifts to the fines in these cases (and reflected in the scope of the proposed prohibition) is the losses suffered by retail investors following the suspension of the fund. The FCA regards such investors as more vulnerable than other investors and considers that the scale of the losses increases the importance of deterring others managing big, high-profile funds with large numbers of retail investors from taking similar risks. This has led them to propose increasing the firm’s penalty from around £5 million (based on 15% of the firm’s relevant revenue) to £40 million and doubling Mr Woodford’s. This is a stark reminder that the FCA remains serious about deterring misconduct in financial services, even where it involves negligence rather than dishonesty, particularly in the context of potential harm to consumers. Firms pursuing growth strategies need to ensure that this is achieved with the appropriate degree of skill and care.
Contractual terms may give rise to regulatory exposure: Part of the case made by the firm and Mr Woodford involved seeking to absolve themselves from regulatory responsibility for compliance with FCA rules on the basis that the firm was not within scope of relevant FCA rules (which applied to a third party entity acting as the firm’s authorised corporate director (ACD). However, the FCA relied on contractual provisions between the firm and its ACD which included obligations on the firm to comply with rules. The FCA considered these were of fundamental importance in assessing compliance with the requirement to act with due skill and care.
Dominant individuals and heeding red flags: This is another case involving a firm founded by a senior individual who was “the dominant director and majority shareholder”. He was apparently “more bullish than consensus” on the prospects of the UK economy following the Brexit vote in 2016 and continued to pursue an investment strategy in the face of worsening performance and numerous warning signs. The FCA comments that the relationship between the firm and its ACD was “clearly fractious” with the ACD seeking to express concerns and impose controls but frequently being met with “intransigence or obstinacy” and its warnings being ignored. Acting with skill, care and diligence involves heeding warnings from others and reacting appropriately to adverse developments. The FCA comments that one of the reasons for the proposed prohibition is that Mr Woodford continues to declare publicly in the media that he has done nothing wrong which is relevant to consideration of his fitness and propriety.

Key findings

Decision maker	The FCA’s Regulatory Decisions Committee
Individual / Firm	Neil Woodford and WIM
Sanction	A prohibition against Mr Woodford in relation to any function relating to investment management involving retail investors and, more broadly, any senior management function or significance influence function in relation to any regulated activity. Fines: Mr Woodford: £5,888,800 WIM: £40,000,000 In coming to these figures, the FCA has taken into account a number of factors, including the losses incurred by retail investors, and proposes to apply uplifts to achieve credible deterrence which have the effect of: doubling Mr Woodford’s fine; and multiplying WIM’s fine around 8 times from almost £5 million to £40 million.
Provisions	Statement of Principle 2 (due skill, care and diligence in carrying out accountable functions); and Statement of Principle 6 (due skill, care and diligence in managing the business of the firm) Principle 2 (skill, care and diligence)
Relevant period	31 July 2018 to 3 June 2019
Key facts	In 2016, Mr Woodford co-founded WIM as an investment management firm and it took over management of the WEIF, an open ended undertaking for collective investment in transferable securities fund. Mr Woodford held a number roles within WIM including head of investment management and lead fund manager for the WEIF and the designated risk owner for all investment risks associated with WIM’s funds including liquidity risk. He was also approved to perform controlled functions (CF1 (director) and CF30 (customer)). A third-party entity acted as the WEIF’s ACD responsible for managing and administering the WEIF in accordance with FCA rules (in the collective investment schemes sourcebook). The investment management agreement between WIM and its ACD included provisions under which WIM agreed: (i) to be responsible for ensuring the fund was managed in accordance with certain regulatory requirements and with reasonable care and skill; and (ii) to consider the liquidity profile of the assets in the fund. In May 2017, the net asset value of the WEIF reached a peak of over £10 billion. In April 2017, following the UK’s vote to leave the European Union in June 2016, Mr Woodford refocused his investment strategy for the WEIF away from large global companies towards UK companies which were frequently smaller and less well capitalised. This led to a change in the balance of the WEIF’s holdings away from highly liquid stocks to those which were less liquid. Many of the WEIF’s assets could not be liquidated within the timeframe necessary to meet redemptions under the regulatory framework and the fund’s terms and conditions. This gave rise to liquidity risk. Following a trend of poor performance, investor redemptions and deteriorating liquidity, by the time of the fund’s suspension in June 2019, the WEIF’s value had fallen to around £3.6 billion and, as it was put into liquidation without reopening, investors’ holdings could not be redeemed at will.
Key Findings	The FCA concluded that, between 31 July 2018 and 3 June 2019: Mr Woodford breached Statement of Principle 2 (due skill, care and diligence in carrying out accountable functions); and Statement of Principle 6 (due skill, care and diligence in managing the business of the firm). WIM breached Principle 2 (skill, care and diligence). The breaches can be summarised as arising from: the unreasonable and inappropriate liquidity profile of the WEIF and WIM’s failure when making investment decisions to pay due regard to the liquidity profile of the fund (the FCA referenced investment decisions based on Mr Woodford’s conviction and which were not balanced from a liquidity perspective which resulted in an increase in the proportion of less liquid shares held); WIM’s failure to implement its risk framework effectively – in particular it failed to manage the WEIF in accordance with its stated risk appetite (while recognising the need to ensure sufficient liquidity to meet investor redemptions) and failed to carry out the annual risk appetite review; the unreasonable and inappropriate metrics and methodologies used to measure the WEIF’s liquidity; a failure to respond reasonably or appropriately to warning signs including warnings given and concerns expressed by the ACD. Mr Woodford and WIM made a number of representations which included reference to the following: the ACD was responsible for compliance with regulatory requirements and had regulatory responsibility for managing liquidity risk (and the investment management agreement imposed on WIM contractual but not regulatory responsibilities); WIM was subject to a liquidity risk framework designed by the ACD which imposed limits on the fund’s liquidity and it was reasonable to assume these represented a reasonable and acceptable liquidity profile; this is not a case involving dishonesty or lack of integrity and the proposed financial penalties and prohibition are not justified. The FCA rejected all the representations and its findings indicate it took the view that: Mr Woodford had a defective and unreasonably narrow understanding of his responsibilities in respect of liquidity risk. He treated his role as being to manage within the limits but not take reasonable steps to ensure they were appropriate; he wrongly took the view that he was entitled to assume that Risk and Compliance and/or the ACD had set appropriate metrics and they would determine what information he received so he did not have to make enquiries and he only challenged the liquidity risk framework when it suited him; the contractual obligations on the firm which included compliance with certain regulatory requirements were fundamental to considering compliance with the requirement to act with due skill and care (even where the regulatory requirements were not directly applicable).