UK regulator orders Link to set aside £306m over Woodford fund scandal; shares crash

Britain’s financial regulator has given the go-ahead for Dye & Durham’s $2.5bn acquisition of Link Group, but only if it sets aside funds for penalty payments.

Link chief executive Vivek Bhatia is steering the group through the takeover.

Link Administration shares have crashed after Dye & Durham’s $2.5bn acquisition of the group hit a $519m roadblock imposed by Britain’s financial regulator.

Britain’s Financial Conduct Authority on Monday night gave the go-ahead for Dye & Durham’s takeover on the condition that it set aside £306m ($519m) to cover potential payouts from the collapse of a Link-administered fund three years ago.

The Canadian suitor in response said it was “assessing the impact” of the UK financial regulator’s monetary condition on the takeover, as ASX-listed Link vowed to fight any penalties imposed on it over the collapse of the Woodford fund in 2019.

The regulator revealed that its investigation into the Woodford Equity Income Fund, which was frozen in 2019, leaving 300,000 investors locked out of £3.7bn in funds, would “likely” require Link Fund Solutions to pay a financial penalty and/or consumer redress.

“The FCA’s current view is that the redress payment LFS could be required to pay may be up to £306m,” the regulator said in a statement.

“This redress proposal reflects the FCA’s current view of LFS’s failings in managing the liquidity of the WEIF. It does not reflect any amount which may be owed to anyone else, including members of the fund, as a result of potential wrongdoing by other parties.”

But in a statement to the ASX on Tuesday, Link said it would “explore all options” if the regulator made any such move and that any liabilities should be confined to its UK subsidiary.

“Link Fund Solutions will explore all options, including challenging any Warning Notice that may be issued at the Regulatory Decisions Committee and further through the Upper Tribunal, as LFSL does not agree with the FCA’s view,” the company said.

“Link Group remains supportive of LFSL considering all such options, and notes that LFSL continues to trade profitably with a leading position in its market. Link Group has not made any commitment to fund or financially support LFSL. Link Group considers that any liabilities relating to the Woodford Matters will be confined to LFSL.”

Separately, Dye & Durham said it was considering the impact of the FCA’s condition, which could see the deal fall over due to the size of the liability.

“Dye & Durham is currently assessing the impact of the proposed condition on the proposed acquisition of Link Group,” the suitor said in a statement to the Toronto Stock Exchange.

The $519m liability is far greater than the value of LFS, which the independent expert, in the lead-up to the takeover, put at between $285m and $368m. Further, a condition of the scheme of arrangement was that if the liability was greater than what LFS could remediate, then the scheme would not proceed.

“If Dye & Durham does not accept the requirement, then a condition under the Scheme Implementation Deed may not be satisfied,” Link said in a statement on Tuesday. “Dye & Durham has not yet indicated its position in relation to the FCA’s requirement. Link Group will update the market as appropriate.”

Link’s role in the Woodford saga was as authorised corporate director, or trustee, of the fund run by former star stockpicker Neil Woodford, known at the time as Britain’s Warren Buffett.

The fund was deluged with redemption requests in mid-2019 as investors panicked after allegations emerged accusing the fund manager of taking excessive risks with investments. Redemptions were suspended and funds frozen.

Link has since distributed £2.54bn to investors from the fund’s asset sales.

The British regulator stressed that it had not yet made a final decision on any potential fine and that it was still investigating the collapsed fund.

“The FCA has therefore decided to approve D&D’s acquisition of LFS, subject to a condition to commit to make funds available to meet any shortfall within LFS in the amount available to cover any redress payments LFS may be required to make,” the regulator said.

This was the only condition the FCA imposed on Canadian D&D’s takeover of Link plus a further six UK-authorised firms.

The regulator did not say when it expected to come to a decision on the investigation.

The fresh hurdle for the acquisition comes after Australia’s competition watchdog gave the green light to the deal last week after accepting D&D’s enforceable undertaking to sell its existing Australian businesses.

Dye & Durham will offload its GlobalX and the Australian operations of SAI Global to a bidder approved by the ACCC.

Link shares fell 20 per cent to close 90c lower at $3.58.