(Bloomberg) -- The head of the U.K.’s financial watchdog called out embattled fund manager Neil Woodford for not following the spirit of the rules.
“We view incidents like the Woodford affair as an example of this -- where firms are following the letter, but not the spirit, of the rules,” Andrew Bailey, head of the Financial Conduct Authority, said at the regulator’s annual public meeting on Wednesday. “It raises questions about the rules themselves.”
Woodford stunned the financial world last month when he locked the LF Woodford Equity Income Fund as he struggled to meet redemption requests following a run of poor performance. The suspension was intended to give him time to raise cash by offloading stakes in unlisted and smaller companies that he had built up in recent years.
Bank of England Governor Mark Carney has said the decision to freeze the fund highlights the risks of money managers piling up less-traded assets. Open-ended funds that offer short-term redemptions while investing in longer-dated and potentially illiquid assets such as corporate bonds currently have more than $30 trillion of global assets, according to the BOE.
The FCA started investigating the events leading up to the fund’s suspension in June.
“Rules are a crucial mechanism for delivering outcomes, but can also be interpreted so rigidly as to become a box-ticking exercise,” Bailey said. “This is a lesson we want to see reflected in firm behavior: any organization that prioritizes being within the rules over doing the right thing will not stand up to scrutiny for long.”
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