The City watchdog revealed yesterday that the administrator of Neil Woodford's collapsed income fund could have to cough up more than £300million.
The Telegraph says this move raises the prospect of significant compensation for the thousands of investors who backed the once star stock picker's vehicle.
The Financial Conduct Authority is set to sanction Link Fund Solutions (LFS) over its role in the collapse of the Woodford Equity Income Fund (WEIF).
Link was the so-called authorised corporate director of WEIF, which meant it had a duty to monitor the fund and hold the fund manager to account.
Mr Woodford's fund was suspended in June 2019 after the stock picker, who had built large positions in hard-to-trade shares, was unable to sell assets quickly enough to meet mounting withdrawal requests from investors.
The fund was shut in October 2019, leaving more than 300,000 savers nursing heavy losses.
The FCA said it was "likely" to hit Link with a "financial penalty and/or consumer redress" of up to £306million following an investigation that has lasted nearly three years.
Announcement
The regulator has yet to conclude its investigation into Link, but made the announcement on Monday in light of the fact Link is in the process of being bought by Toronto-based Dye & Durham, as part of a £1.5billion deal to acquire Link's parent company.
The FCA said it will not approve the deal unless the Canadian company agrees to cover the liabilities related to Link's role in the Woodford blow-up.
The regulator told the Telegraph: "The FCA has investigated the circumstances leading to the suspension of the WEIF and is likely to seek to require LFS 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 £306million.
"This redress proposal reflects the FCA's current view of (Link's) failings in managing the liquidity of the (Woodford fund). 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."
It added that it has not yet made a final decision on the penalty and Link has a right to challenge any decision via the FCA's decisions committee and Upper Tribunal.
The proposed penalty is the latest development in the collapse of the veteran stock picker's fund nearly three years ago.
Lawsuit
In June, two groups of investors joined forces in a multi-million pound lawsuit over the collapse of Mr Woodford's fund.
London law firms Leigh Day and Harcus Parker filed a group claim in the High Court against Link, seeking tens of millions of pounds in damages over its handling of the saga.
The firms allege that Link netted millions of pounds in fees, but failed to adequately supervise the £3.7billion fund.
They also claim that Link failed to manage the fund's liquidity, ensure its assets were appropriately valued and provide a prudent spread of risk, which proved catastrophic for investors.
Link previously said it will be "vigorously defending" the case, adding that it acted "in accordance with applicable rules, as well as in the best interests of all investors, and it will continue to do so".
Last year, Mr Woodford, who is not a target of the lawsuit, lashed out at Link and rejected widespread criticisms of his operating style.
Link declined to comment.
FTSE 100
The UK's top share index, the FTSE 100, was up three points at 7,476 shortly after opening this morning, following yesterday's 121-point gain.
Brent crude futures were ahead by 0.35% at $94.33 a barrel.
Companies reporting today
- Half-year results: Fevertree, JTC