FCA admits it does not track frequency of funds that block investor withdrawals
The Financial Conduct Authority (FCA) has conceded it has failed to keep track of investment fund suspensions, an admission that raises questions over the effectiveness of its oversight and its ability to protect investors, according to an investigation by The Financial Times.
The UK financial watchdog has been severely criticised for its lack of oversight of several funds that have run into difficulty in recent years, including the high-profile collapse of Neil Woodford’s investment empire and a spate of property funds following the Brexit vote in 2016.
A lack of liquidity is one reason funds that offer daily dealings can be suspended.
Last week the Labour party urged the government to delay installing Andrew Bailey, head of the FCA, as the new governor of the Bank of England (BoE) and demanded an independent inquiry into the role of the regulator over the implosion of Woodford’s flagship fund.
Under the Freedom of Information Act (FOI), the FTfm asked the FCA to provide data on the frequency of fund suspensions. When the regulator declined to provide the information, FTfm appealed against the decision and asked for an internal review.
After the regulator carried out its review, it provided a report to FTfm, which revealed the FCA “does not hold any central record or ‘index’ detailing” investment fund suspensions.
“The information sought in your request has not been stored in a way that would make it easily identifiable without reviewing each piece of information held by the FCA,” notes the FCA in response to the FT’s request.
The revelations will alarm critics of the regulator, who believe it has not done enough to oversee funds and ensure they do not buckle, putting the savings of British investors at risk.
Alan Miller, chief investment officer of SCM Direct, says: “If the FCA cannot be trusted to properly record its own supervisory and enforcement activities, how can anyone have confidence in the ability to properly regulate the industry and ensure customers are treated fairly?”
He says he supports an independent review of Bailey’s appointment at the BoE, adding senior managers at the FCA were “simply not fit to hold such crucial regulatory positions of authority”.
The regulator — which has statutory objectives to protect consumers, financial markets and competition — carried out an investigation into the spate of property funds that were forced to suspend following the UK’s vote to leave the EU in 2016. Its report published late last year, introduced new rules for funds holding hard to sell assets.
It has also launched formal inquiries into the failures surrounding the Woodford fund’s collapse, as well as into the influential authorised corporate director sector.
But in the report sent to FTfm, the FCA’s information disclosure team says its internal record systems were not set up to search across the more than 3,500 investment funds that it regulates. In order to build up a picture of how frequently funds suspend, staff would have to carry out manual searches of each fund’s file, which would take between two and five minutes on average.
“This would entail reviewing an extensive amount of information spread among a range of systems and business areas to determine that which falls within the scope of your request,” the regulator says.
“The government must now launch an urgent independent review of the FCA along the lines of the recent Financial Reporting Council review, which culminated in the closure of this equally amateurish, shoddy regulator,” Miller adds.