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EU hits back in Woodford blame game

European Commission says poor oversight by UK financial regulator was key reason for Neil Woodford debacle


David Robinson

The European Commission has hit back at claims by the UK’s Financial Conduct Authority that shortcomings in EU regulations were behind the fallout involving fund manager Neil Woodford.

Woodford stopped investors from withdrawing money from his flagship €4.1bn fund earlier this month after it racked up huge losses amid excessive exposure to illiquid assets.

On Tuesday, FCA chief executive Andrew Bailey told a UK parliament committee that some of the underlying problems in Woodford’s case because of loopholes in the European fund regulation system.

European Union Ucits rules cap the amount of illiquid assets an investment fund can have at 10%, while remaining assets must be listed on an approved stock exchange.

Woodford circumnavigated these rules by listing investments on the Guernsey stock exchange to meet 10% cap on unquoted securities.

Weak UK supervision

The European Commission said the chief reason for the Woodford debacle was a lack of effective oversight by UK financial regulator.

“This case seems to be a supervisory issue concerning the application of the EU rules, and not of the Ucits rules themselves,” a European Commission spokesperson said.

“We see no immediate reason for changing rules which are, in our view, clear but need to be applied properly by national authorities in order to ensure the intended protection of investors.”

The spokesman added that the European Commission has always advocated that the European Securities and Markets Authority (Esma) should have “a strong role in ensuring convergence of supervisory practices to ensure consistent application of EU rules”.

Bailey had told the parliamentary committee on Tuesday that oversight to prevent similar problems at funds would be easier after Brexit because of overly complex EU regulations.

Ucits – undertakings for collective investment in transferable securities – are expected to invest in liquid assets in order to be able to ensure daily redemptions, the European Commission spokesperson said.

Several layers of regulations apply in this context which are laid down in Ucits Directive, the Commission Directive 2007/16/EC ‘Eligible assets Directive” and the guidelines applicable to the liquidity risk assessment and liquidity management process.