Decision Notice
On , the Financial Conduct Authority issued a Decision Notice to Link Acquisition Australia Pty Ltd, Durham Limited
DECISION NOTICE
Dye and Durham Corporation
Dye and Durham Limited
ACTION
1.
For the reasons listed below and pursuant to sections 187(1) of the Financial
Services and Markets Act 2000 (“the Act”), the Authority has decided to
approve the proposed acquisition (“the Proposed Acquisition”) by Link
Acquisition Australia Pty Ltd, Link Acquisitions Holdings Australia Pty Ltd, Dye
and Durham Corporation and Dye and Durham Limited (“the Proposed
Controllers”) of 100% shareholding and voting rights in Link Fund Solutions
Limited (“LFS”) with conditions (“the Conditions”) as follows:
(1)
Prior to the completion of the Proposed Acquisition, the Proposed
Controllers must enter into a deed of settlement with the Authority (“the
Deed”) whereby the Proposed Controllers undertake, jointly and
severally, that:
a)
in the event that, following due process by the Authority, in
accordance with provisions in the Act and the Authority’s published
process (including, if referred by LFS to it, a decision of the Upper
Tribunal (Tax and Chancery Chamber) (“the Tribunal”)), LFS is
required by the Authority, pursuant to the Act, to pay restitution
and/or redress to the LF Equity Income Fund (previously known as
the LF Woodford Equity Income Fund) or to unitholders of it (“the
Potential Redress Payments”); and
b)
in the event that LFS is unable to make payment in full of the
Potential Redress Payments as they fall due from its available
assets and resources, such that there is a shortfall in the total
amount owing (“the Potential Shortfall”);
then the Proposed Controllers will, subject to Condition (2) below, within
3 months (or such longer period as may be agreed with the Authority),
make arrangements for monies to be made available, according to
arrangements to be agreed with the Authority, equal to the Potential
Shortfall, to enable the Potential Redress Payments to be paid in full.
(2)
The Proposed Controllers will only be required to make up the Potential
Shortfall under Condition (1) to enable a total sum payable under the
Potential Redress Payments of not more than £306 million.
(3)
The Proposed Controllers must comply with the terms of the Deed.
SUMMARY OF REASONS
2.
Having considered the facts and matters of the case and having regard to
sections 185(2)(a), (b) and (c), 185(3)(a) and 186 of the Act, the Authority
considers that there are reasonable grounds for objecting to the Proposed
Acquisition on the basis that there is a material risk that LFS will be unable to
comply with its prudential requirements (including the threshold condition
which requires it to maintain appropriate resources), but that this risk can be
satisfactorily mitigated by the imposition of the Conditions.
3.
LFS is currently subject to an investigation by the Authority in respect of its
management of the LF Woodford Equity Income Fund (“the WEIF”). Although
the Authority has not made a determination of the appropriate outcome, the
Authority considers that there is a likelihood that it will seek to impose a
financial penalty and/or require the payment of restitution. If such a
requirement was imposed, LFS would have the right to make representations
on whether a requirement for the payment of restitution should be imposed
and, if so, in what amount, and/or would retain the right to refer the matter
to the Tribunal for independent determination. As such, whether the Potential
Redress Payments will be required and, if so, in what amount, remains
uncertain. However, the Authority considers that the total sum to be paid by
LFS under the Potential Redress Payments may exceed its currently available
resources. This would threaten the ability of LFS to comply with its prudential
requirements, including the threshold condition which requires it to maintain
appropriate resources (“the Appropriate Resources Threshold Condition”).
4.
In communications with the Authority, the Proposed Controllers have
indicated that, while they are supportive of unitholders of the WEIF achieving
appropriate redress (if found to be due), at present, they are not able to
commit, prior to the Proposed Acquisition completing, to provide LFS with
additional resources beyond LFS’s own resources. As a result, the Authority
considers that there is an unacceptable risk that, if the Proposed Acquisition
is completed, LFS will be unable to meet its prudential requirements, including
the Appropriate Resources Threshold Condition, and there is accordingly a
significant risk to the sound and prudent management of LFS.
5.
The Authority considers that this risk may be appropriately mitigated by
ensuring that, in the event that LFS is required to pay the Potential Redress
Payments (and not otherwise), and, if the amount to be paid exceeds the
available resources of LFS, monies are made available to LFS which would
enable it to meet payment of the Potential Redress Payments. At present, the
Authority considers that the quantum of the Potential Redress Payments will
not exceed £306 million.
6.
Accordingly, the Authority has decided, as a condition of the Proposed
Acquisition, to require the Proposed Controllers, to provide a commitment to
arrange the provision of such finance as may prove necessary to make up any
part of the Potential Shortfall which may result to enable a total sum payable
under the Potential Redress Payments (in the event that such a requirement
is imposed on LFS and not otherwise) of £306 million.
7.
The Authority has therefore decided to approve the Proposed Acquisition,
subject to the imposition of the Conditions.
DEFINITIONS
8.
The definitions below are used in this Decision Notice:
“ACD” means authorised corporate director;
“the Act” means the Financial Services and Markets Act 2000;
“the Appropriate Resources Threshold Condition” means the threshold
condition relating to the appropriate resources of an authorised person, as set
out in paragraph 2D of Part 1B of Schedule 6 to the Act;
“the Authority” means the Financial Conduct Authority;
“the Conditions” means the conditions proposed to be imposed by the
Authority on the Proposed Acquisition, set out in paragraph 1 of this Notice;
“the Deed” means the deed described in paragraph 1(1) of this Notice;
“the Investigation” means the Authority’s investigation into the conduct of LFS
as ACD of the WEIF;
“LFS” means Link Fund Solutions Limited (FRN 119197);
“the Link Group” means the group of companies of which LFS is part;
“the Potential Redress Payments” means any payments which LFS may be
required to make to the WEIF or to unitholders in it as a result of a
requirement imposed by the Authority under the Act;
“the Potential Shortfall” means any shortfall which, in the event that a
requirement to pay the Potential Redress Payments is made by the Authority,
may arise between the available assets and resources of LFS and the total of
the Potential Redress Payments;
“the Proposed Acquisition” means the proposed acquisition by the Proposed
Controllers of 100% shareholding and voting rights in LFS;
“the Proposed Controllers” means Link Acquisition Australia Pty Ltd, Link
Acquisitions Holdings Australia Pty Ltd, Dye and Durham Corporation and Dye
and Durham Limited;
“the Tribunal” means the Upper Tribunal (Tax & Chancery Chamber);
“UK UCITS” means a UK undertaking for collective investment in transferable
securities, as defined in sections 236A and 237 of the Act;
“the Warning Notice” means the warning notice given the Proposed
Controllers on 9 September 2022, proposing to approve the Proposed
Acquisition subject to the Conditions; and
“the WEIF” means the LF Woodford Equity Income Fund (called the CF
Woodford Equity Income Fund between 2014 and 2017 and, since 14 January
2020, the LF Equity Income Fund) (FRN 635902).
FACTS AND MATTERS
9.
LFS is authorised under the Act with permissions to manage a UK UCITS and
other funds. By notifications dated 25 March 2022 in respect of Dye and
Durham Corporation and Dye and Durham Limited and 10 June 2022
(received after 5pm 13 June) in respect of Link Acquisition Australia Pty
Limited and Link Acquisitions Holdings Australia Pty Limited, the Proposed
Controllers provided notification of their decision to acquire control of LFS.
The Proposed Acquisition forms part of an acquisition by the Proposed
Controllers of the group of companies of which LFS is part (“the Link Group”).
The parent company of the Link Group is a listed company in Australia and
the acquisition of the Link Group is subject to a scheme of arrangement in
Australia.
10.
LFS is the authorised corporate director (“ACD”) of the WEIF. The WEIF is a
sub-fund of the LF Woodford Investment Fund, an open-ended UCITS scheme,
authorised by the Authority and opened in May 2014. The WEIF attracted
significant investment from a range of investors, including retail consumers.
As ACD, LFS was responsible for managing the WEIF, including its liquidity.
11.
On 3 June 2019, LFS decided to suspend the WEIF as a result of concerns
about its liquidity, meaning that investors could no longer redeem their
investments. On 15 October 2019, LFS decided to liquidate the WEIF without
reopening it. While distributions to unitholders remain ongoing, it is apparent
that the value of many of the assets held within the WEIF has reduced
significantly, meaning that unitholders have received, or will receive,
significantly less than the previous value of their investments.
12.
On 17 June 2019, the Authority appointed investigators under section 168(5)
of the Act to carry out an investigation into LFS’s conduct as ACD of the WEIF
(“the Investigation”). The Investigation has been ongoing since that time.
13.
Although it has made no determination of the appropriate outcome, the
Authority currently considers that evidence gathered as part of the
Investigation is likely to demonstrate that LFS committed misconduct in the
course of its management of the WEIF. In the event that the Authority reached
such a conclusion, the Authority is likely to seek to initiate enforcement action
against LFS. LFS would have the right to challenge the findings of any such
action, including by making representations to the Authority and/or by
referring the matter to the Tribunal. As such, the outcome remains uncertain.
14.
Any enforcement action against LFS may involve the imposition of a
requirement to make the Potential Redress Payments to investors adversely
affected as a result of any proven breaches of regulatory requirements by
LFS. LFS would have the right to challenge any such requirement, including
by making representations to the Authority and/or by referring the matter to
the Tribunal. As such, the quantum of the Potential Redress Payments (if LFS
is made subject to such a requirement) is uncertain.
15.
At present, the Authority considers that the total of the Potential Redress
Payments to be made (if LFS is made subject to such a requirement) will not
exceed £306 million.
16.
In its latest regulatory return, LFS reported that it holds capital of
[REDACTED]. This figure is above LFS’s minimum capital requirement of
[REDACTED]. The Authority understands that, in addition, in respect of any
requirement to pay the Potential Redress Payments (if made), LFS may
benefit from insurance coverage up to the sum of [REDACTED].
17.
As such, the Authority currently considers that there is a likelihood that the
quantum of the Potential Redress Payments may exceed the financial assets
currently available to LFS. As such, the Authority considers that, in the event
that a requirement to make the Potential Redress Payments was made, and
the quantum of the Potential Redress Payments exceeded LFS’s currently
available assets, LFS would be unable to pay such financial orders while
continuing to comply with the Appropriate Resources Threshold Condition.
18.
In communications with the Authority, the Proposed Controllers have
confirmed that, while they are supportive of the unitholders of the WEIF
achieving appropriate redress (if due), prior to the Proposed Acquisition
completing, beyond agreeing to retain within LFS its currently available assets
and resources, they are not able to make any commitment to the provision of
further financial support for the Potential Redress Payments beyond LFS’s own
resources.
19.
On 9 September 2022, the Authority gave the Proposed Controllers a warning
notice (“the Warning Notice”), proposing to approve the Proposed Acquisition
subject to the Conditions. The Proposed Controllers made representations to
the Authority on 11 September 2022 and 12 September 2022 in which they
asserted that the Authority should not make approval of the Proposed
Acquisition subject to the Conditions. The Authority has considered these
representations in making this decision.
IMPACT OF THE ASSESSMENT CRITERIA
20.
The regulatory provisions relevant to this Decision Notice are referred to in
21.
When assessing the proposed acquisition of an authorised person, the
Authority is required to consider the financial soundness of the acquisition in
order to ensure the sound and prudent management of the authorised person
and may object to a proposed acquisition only if there are reasonable grounds
for doing so on the basis of various matters set out in section 186 of the Act,
which include whether the authorised person will be able to comply with its
prudential requirements (which includes the Appropriate Resources Threshold
Condition).
22.
The Authority considers that there are reasonable grounds to object to the
Proposed Acquisition since, if the Proposed Acquisition is completed, and in
the event that the Authority requires LFS to make the Potential Redress
Payments and the quantum exceeds its available assets and resources, there
is a risk that LFS will be unable to pay the Potential Redress Payments.
23.
As a result, the Authority considers that, in the absence of appropriate
conditions, it would propose to object to the Proposed Acquisition. However,
the Authority considers that its concerns about LFS’s ability to meet the
Potential Redress Payments could be satisfactorily mitigated by imposing
conditions on its approval of the Proposed Acquisition which ensure that, in
the event that a requirement is imposed to make the Potential Redress
Payments, and LFS is unable to make the Potential Redress Payments in full
from its available assets and resources, the Proposed Controllers will commit
to make arrangements which make up the Potential Shortfall.
24.
To that end, the Authority considers it appropriate to impose the Conditions
on its approval of the Proposed Acquisition which require the Proposed
Controllers to commit to arranging the provision of any finance necessary to
meet any part of the Potential Shortfall in the Potential Redress Payments, so
as to enable a maximum total sum payable under the Potential Redress
Payments of £306 million to be payable.
25.
The Authority has considered representations made by the Proposed
Controllers in respect of the Warning Notice. These assert that the approval
should not be made subject to the Conditions. The Authority nevertheless
considers, for the reasons outlined in this Decision Notice, that it is
appropriate to impose the Conditions.
26.
The Authority has therefore decided to approve the Proposed Acquisition
subject to the Conditions.
PROCEDURAL MATTERS
Decision maker
27.
The decision which gave rise to the obligation to give this Decision Notice was
made by the Executive Decision Maker.
28.
This Decision Notice is given under section 189(7) and in accordance with
section 388 of the Act. The following statutory rights are important.
The Tribunal
29.
Each of the Proposed Controllers has the right to refer the matter to which
this Decision Notice relates to the Tribunal. Under paragraph 2(2) of Schedule
3 of the Tribunal Procedure (Upper Tribunal) Rules 2008, the Proposed
Controllers have 28 days from the date on which this Decision Notice is given
to each of them to make a reference to the Tribunal. A reference to the
Tribunal is made by way of a signed reference form (Form FTC3) filed with a
copy of this Decision Notice. The Tribunal’s contact details are: The Upper
Tribunal (Tax and Chancery Chamber), Fifth Floor, Rolls Building, Fetter Lane,
London EC4A 1NL (tel: 020 7612 9730; email: uttc@justice.gov.uk).
30.
Further information on the Tribunal, including guidance and a link to ‘Forms
and further guidance’ which includes Form FTC3 and notes on that form, can
be
found
on
the
HM
Courts
and
Tribunal
Service
website:
chamber.
31.
A copy of Form FTC3 must also be sent to Alexander Walsh at the Financial
Conduct Authority, 12, Endeavour Square, London, E20 1JN (email
alexander.walsh@fca.org.uk) at the same time as filing a reference with the
Tribunal.
32.
Once any such referral is determined by the Tribunal and subject to that
determination, or if the matter has not been referred to the Tribunal, the
Authority will issue a Final Notice about the implementation of that decision.
Access to evidence
33.
Section 394 of the Act does not apply to this Decision Notice.
Confidentiality and publicity
34.
This Decision Notice may contain confidential information and should not be
disclosed to a third party (except for the purpose of obtaining advice on its
contents). Section 391(1A) of the Act provides that a person to whom a
Decision Notice is given or copied may not publish the notice or any details
concerning it unless the Authority has published the notice or those details.
35.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this Decision Notice relates. Under
those provisions, the Authority must publish such information about the
matter to which this Decision Notice relates as the Authority considers
appropriate. The information may be published in such manner as the
Authority considers appropriate. However, the Authority may not publish
information if such publication would, in the opinion of the Authority, be unfair
to the Proposed Controllers, prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.
FCA contacts
36.
For more information concerning this matter generally, contact Alexander
Walsh, Manager, Change in Control at the FCA (direct line: 020 7066 0008 /
email: alexander.walsh@fca.org.uk).
Emily Shepperd, Executive Director of Authorisations
ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS DECISION NOTICE
Change in control
1.
The requirement to notify the Authority when deciding to acquire control of an
authorised firm is set out in section 178 of the Act. It states that:
1)
A person who decides to acquire or increase control over a UK authorised
person must give [the Authority] notice in writing before making the
acquisition.
2)
For the purposes of calculations relating to this section, the holding of shares
or voting power by a person (“A1”) includes any shares or voting power held
by another (“A2”) if A1 and A2 are acting in concert.
3)
In this Part, a notice given under this section is a “section 178 notice” and a
person giving notice is a “section 178 notice-giver”.
2.
Acquiring control of a firm is defined in section 181 of the Act, as varied by
regulations issued under section 192 of the Act, as beginning to hold: 20% or more
of the shares in the firm, or its parent undertaking, 20% of the voting power in the
firm or shares or voting power as a result of which a person is able to exercise
significant influence over the management of the firm.
3.
Section 185 of the Act provides that:
(1)
Where [the Authority] receives a section 178 notice, it must—
a)
determine whether to approve the acquisition to which it relates
unconditionally; or
b)
propose to—
(i)
approve the acquisition subject to conditions (see section 187);
or
(ii)
object to the acquisition.
(2)
[The Authority] must—
a)
consider the suitability of the section 178 notice-giver and the financial
soundness of the acquisition in order to ensure the sound and prudent
management of the UK authorised person;
b)
have regard to the likely influence that the section 178 notice-giver will
have on the UK authorised person; and
c)
disregard the economic needs of the market.
(3)
[The Authority] may only object to an acquisition—
a)
if there are reasonable grounds for doing so on the basis of the matters
set out in section 186; or
b)
if the information provided by the section 178 notice-giver is incomplete.
4.
Section 186 of the Act provides that the matters specified in section 185(3)(a) are—
a)
the reputation of the section 178 notice-giver;
b)
the reputation, knowledge, skills and experience of any person who will
direct the business of the UK authorised person as a result of the
proposed acquisition;
c)
the financial soundness of the section 178 notice-giver, in particular in
relation to the type of business that the UK authorised person pursues
or envisages pursuing;
d)
whether the UK authorised person will be able to comply with its
prudential requirements (including the threshold conditions in relation
to all of the regulated activities for which it has or will have permission);
e)
if the UK authorised person is to become part of a group as a result of
the acquisition, whether that group has a structure which makes it
possible to—
(i)
exercise effective supervision;
(ii)
exchange information among regulators; and
(iii)
determine the allocation of responsibility among regulators; and
f)
whether there are reasonable grounds to suspect that in connection with
the proposed acquisition—
(i)
money laundering or terrorist financing (as defined in regulation
3(1) of the Money Laundering, Terrorist Financing and Transfer of
Funds (Information on the Payer) Regulations 2017) is being or
has been committed or attempted; or
(ii)
the risk of such activity could increase.
5.
Section 187 of the Act provides:
(1)
[The Authority] may impose conditions on its approval of an acquisition.
(2)
[The Authority] may only impose conditions where-
a)
If it did not impose those conditions, it would object to the acquisition,
or
b)
It is required to do so by a direction under section 187A(3)(b) or section
187B(3).
(3)
[The Authority] may not impose conditions requiring a particular level of
holding to be acquired.
(4)
[The Authority] may vary or cancel the conditions.
6.
Section 189 of the Act sets out the procedure by which the Authority must assess
the section 178 notice. It provides:
(1)
The Authority must act under section 185 within a period of 60 working days
beginning with the day on which the Authority acknowledges receipt of the
section 178 notice (“the assessment period”).
(2)
The assessment period may be interrupted, no more than once, in accordance
with section 190.
(3)
The Authority must inform the section 178 notice-giver in writing of—
(i)
the duration of the assessment period;
(ii)
its expiry date; and
(iii)
any change to the expiry date by virtue of section 190.
(4)
The Authority must, within two working days of acting under section 185 (and
in any event no later than the expiry date of the assessment period)—
(i)
notify the section 178 notice-giver that it has determined to approve the
acquisition unconditionally; or
(ii)
give a Warning Notice stating that it proposes to—
a.
approve the acquisition subject to conditions; or
b.
object to the acquisition.
(5)
Where the Authority gives a Warning Notice stating that it proposes to
approve the acquisition subject to conditions—
(i)
it must, in the Warning Notice, specify those conditions; and
(ii)
the conditions take effect as interim conditions.
(6)
The Authority is treated as having approved the acquisition if, at the expiry of
the assessment period, it has neither—
(i)
given notice under subsection (4); nor
(ii)
informed the section 178 notice-giver that the section 178 notice is
incomplete.
(7)
If the Authority decides to approve an acquisition subject to conditions or to
object to an acquisition it must give the section 178 notice-giver a Decision
Notice.
(8)
Following receipt of a Decision Notice under this section, the section 178
notice-giver may refer the Authority's decision to the Tribunal.
7.
Section 191F of the Act provides (as relevant):
(3)
A person who contravenes an interim condition in a warning notice given
under section 189(4)(b)(i) or a condition in a decision notice given under
section 189(7) or a final notice which confirms a decision notice under that
section is guilty of an offence.
(8)
A person guilty of an offence under subsection … (3) … is liable-
(a) on summary conviction to a fine not exceeding the statutory maximum;
or
(b) on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine, or both.
Threshold conditions
8.
The threshold conditions are the minimum requirements which any authorised
person must meet. In respect of authorised persons which are not PRA-authorised
persons, these are set out in Part 1B of Schedule 6 to the Act. Paragraph 2D of Part
1B of Schedule 6 to the Act sets out the Appropriate Resources Threshold Condition.
It states (as relevant):
(1) The resources of [the authorised person] must be appropriate in relation to the
regulated activities that [the authorised person] carries on or seeks to carry on.
(2) The matters which are relevant in determining whether [the authorised person]
has appropriate resources include—
(a) the nature and scale of the business carried on, or to be carried on, by
[the authorised person];
(b) the risks to the continuity of the services provided by, or to be provided
by, [the authorised person];
(c) [the authorised person]'s membership of a group and any effect which
that membership may have.
(3) Except in a case within sub-paragraph (3A), the matters which are relevant in
determining whether [the authorised person] has appropriate financial resources
include—
(a) the provision [the authorised person] makes and, if [the authorised
person] is a member of a group, which other members of the group make, in
respect of liabilities;
(b) the means by which [the authorised person] manages and, if [the
authorised person] is a member of a group, by which other members of the
group manage, the incidence of risk in connection with [the authorised
person]'s business.
9.
Relevant guidance is contained in Chapter 11 of the Supervision Manual (“SUP”),
which is part of the Regulatory Processes section of the Authority’s Handbook. SUP
11.7.1G refers to the statutory approval requirements contained in sections 185
and 186 of the Act.
10.
SUP 11 Annex 6G refers to the aggregation of holdings for the purpose of prudential
assessment of controllers.
Dye and Durham Corporation
Dye and Durham Limited
ACTION
1.
For the reasons listed below and pursuant to sections 187(1) of the Financial
Services and Markets Act 2000 (“the Act”), the Authority has decided to
approve the proposed acquisition (“the Proposed Acquisition”) by Link
Acquisition Australia Pty Ltd, Link Acquisitions Holdings Australia Pty Ltd, Dye
and Durham Corporation and Dye and Durham Limited (“the Proposed
Controllers”) of 100% shareholding and voting rights in Link Fund Solutions
Limited (“LFS”) with conditions (“the Conditions”) as follows:
(1)
Prior to the completion of the Proposed Acquisition, the Proposed
Controllers must enter into a deed of settlement with the Authority (“the
Deed”) whereby the Proposed Controllers undertake, jointly and
severally, that:
a)
in the event that, following due process by the Authority, in
accordance with provisions in the Act and the Authority’s published
process (including, if referred by LFS to it, a decision of the Upper
Tribunal (Tax and Chancery Chamber) (“the Tribunal”)), LFS is
required by the Authority, pursuant to the Act, to pay restitution
and/or redress to the LF Equity Income Fund (previously known as
the LF Woodford Equity Income Fund) or to unitholders of it (“the
Potential Redress Payments”); and
b)
in the event that LFS is unable to make payment in full of the
Potential Redress Payments as they fall due from its available
assets and resources, such that there is a shortfall in the total
amount owing (“the Potential Shortfall”);
then the Proposed Controllers will, subject to Condition (2) below, within
3 months (or such longer period as may be agreed with the Authority),
make arrangements for monies to be made available, according to
arrangements to be agreed with the Authority, equal to the Potential
Shortfall, to enable the Potential Redress Payments to be paid in full.
(2)
The Proposed Controllers will only be required to make up the Potential
Shortfall under Condition (1) to enable a total sum payable under the
Potential Redress Payments of not more than £306 million.
(3)
The Proposed Controllers must comply with the terms of the Deed.
SUMMARY OF REASONS
2.
Having considered the facts and matters of the case and having regard to
sections 185(2)(a), (b) and (c), 185(3)(a) and 186 of the Act, the Authority
considers that there are reasonable grounds for objecting to the Proposed
Acquisition on the basis that there is a material risk that LFS will be unable to
comply with its prudential requirements (including the threshold condition
which requires it to maintain appropriate resources), but that this risk can be
satisfactorily mitigated by the imposition of the Conditions.
3.
LFS is currently subject to an investigation by the Authority in respect of its
management of the LF Woodford Equity Income Fund (“the WEIF”). Although
the Authority has not made a determination of the appropriate outcome, the
Authority considers that there is a likelihood that it will seek to impose a
financial penalty and/or require the payment of restitution. If such a
requirement was imposed, LFS would have the right to make representations
on whether a requirement for the payment of restitution should be imposed
and, if so, in what amount, and/or would retain the right to refer the matter
to the Tribunal for independent determination. As such, whether the Potential
Redress Payments will be required and, if so, in what amount, remains
uncertain. However, the Authority considers that the total sum to be paid by
LFS under the Potential Redress Payments may exceed its currently available
resources. This would threaten the ability of LFS to comply with its prudential
requirements, including the threshold condition which requires it to maintain
appropriate resources (“the Appropriate Resources Threshold Condition”).
4.
In communications with the Authority, the Proposed Controllers have
indicated that, while they are supportive of unitholders of the WEIF achieving
appropriate redress (if found to be due), at present, they are not able to
commit, prior to the Proposed Acquisition completing, to provide LFS with
additional resources beyond LFS’s own resources. As a result, the Authority
considers that there is an unacceptable risk that, if the Proposed Acquisition
is completed, LFS will be unable to meet its prudential requirements, including
the Appropriate Resources Threshold Condition, and there is accordingly a
significant risk to the sound and prudent management of LFS.
5.
The Authority considers that this risk may be appropriately mitigated by
ensuring that, in the event that LFS is required to pay the Potential Redress
Payments (and not otherwise), and, if the amount to be paid exceeds the
available resources of LFS, monies are made available to LFS which would
enable it to meet payment of the Potential Redress Payments. At present, the
Authority considers that the quantum of the Potential Redress Payments will
not exceed £306 million.
6.
Accordingly, the Authority has decided, as a condition of the Proposed
Acquisition, to require the Proposed Controllers, to provide a commitment to
arrange the provision of such finance as may prove necessary to make up any
part of the Potential Shortfall which may result to enable a total sum payable
under the Potential Redress Payments (in the event that such a requirement
is imposed on LFS and not otherwise) of £306 million.
7.
The Authority has therefore decided to approve the Proposed Acquisition,
subject to the imposition of the Conditions.
DEFINITIONS
8.
The definitions below are used in this Decision Notice:
“ACD” means authorised corporate director;
“the Act” means the Financial Services and Markets Act 2000;
“the Appropriate Resources Threshold Condition” means the threshold
condition relating to the appropriate resources of an authorised person, as set
out in paragraph 2D of Part 1B of Schedule 6 to the Act;
“the Authority” means the Financial Conduct Authority;
“the Conditions” means the conditions proposed to be imposed by the
Authority on the Proposed Acquisition, set out in paragraph 1 of this Notice;
“the Deed” means the deed described in paragraph 1(1) of this Notice;
“the Investigation” means the Authority’s investigation into the conduct of LFS
as ACD of the WEIF;
“LFS” means Link Fund Solutions Limited (FRN 119197);
“the Link Group” means the group of companies of which LFS is part;
“the Potential Redress Payments” means any payments which LFS may be
required to make to the WEIF or to unitholders in it as a result of a
requirement imposed by the Authority under the Act;
“the Potential Shortfall” means any shortfall which, in the event that a
requirement to pay the Potential Redress Payments is made by the Authority,
may arise between the available assets and resources of LFS and the total of
the Potential Redress Payments;
“the Proposed Acquisition” means the proposed acquisition by the Proposed
Controllers of 100% shareholding and voting rights in LFS;
“the Proposed Controllers” means Link Acquisition Australia Pty Ltd, Link
Acquisitions Holdings Australia Pty Ltd, Dye and Durham Corporation and Dye
and Durham Limited;
“the Tribunal” means the Upper Tribunal (Tax & Chancery Chamber);
“UK UCITS” means a UK undertaking for collective investment in transferable
securities, as defined in sections 236A and 237 of the Act;
“the Warning Notice” means the warning notice given the Proposed
Controllers on 9 September 2022, proposing to approve the Proposed
Acquisition subject to the Conditions; and
“the WEIF” means the LF Woodford Equity Income Fund (called the CF
Woodford Equity Income Fund between 2014 and 2017 and, since 14 January
2020, the LF Equity Income Fund) (FRN 635902).
FACTS AND MATTERS
9.
LFS is authorised under the Act with permissions to manage a UK UCITS and
other funds. By notifications dated 25 March 2022 in respect of Dye and
Durham Corporation and Dye and Durham Limited and 10 June 2022
(received after 5pm 13 June) in respect of Link Acquisition Australia Pty
Limited and Link Acquisitions Holdings Australia Pty Limited, the Proposed
Controllers provided notification of their decision to acquire control of LFS.
The Proposed Acquisition forms part of an acquisition by the Proposed
Controllers of the group of companies of which LFS is part (“the Link Group”).
The parent company of the Link Group is a listed company in Australia and
the acquisition of the Link Group is subject to a scheme of arrangement in
Australia.
10.
LFS is the authorised corporate director (“ACD”) of the WEIF. The WEIF is a
sub-fund of the LF Woodford Investment Fund, an open-ended UCITS scheme,
authorised by the Authority and opened in May 2014. The WEIF attracted
significant investment from a range of investors, including retail consumers.
As ACD, LFS was responsible for managing the WEIF, including its liquidity.
11.
On 3 June 2019, LFS decided to suspend the WEIF as a result of concerns
about its liquidity, meaning that investors could no longer redeem their
investments. On 15 October 2019, LFS decided to liquidate the WEIF without
reopening it. While distributions to unitholders remain ongoing, it is apparent
that the value of many of the assets held within the WEIF has reduced
significantly, meaning that unitholders have received, or will receive,
significantly less than the previous value of their investments.
12.
On 17 June 2019, the Authority appointed investigators under section 168(5)
of the Act to carry out an investigation into LFS’s conduct as ACD of the WEIF
(“the Investigation”). The Investigation has been ongoing since that time.
13.
Although it has made no determination of the appropriate outcome, the
Authority currently considers that evidence gathered as part of the
Investigation is likely to demonstrate that LFS committed misconduct in the
course of its management of the WEIF. In the event that the Authority reached
such a conclusion, the Authority is likely to seek to initiate enforcement action
against LFS. LFS would have the right to challenge the findings of any such
action, including by making representations to the Authority and/or by
referring the matter to the Tribunal. As such, the outcome remains uncertain.
14.
Any enforcement action against LFS may involve the imposition of a
requirement to make the Potential Redress Payments to investors adversely
affected as a result of any proven breaches of regulatory requirements by
LFS. LFS would have the right to challenge any such requirement, including
by making representations to the Authority and/or by referring the matter to
the Tribunal. As such, the quantum of the Potential Redress Payments (if LFS
is made subject to such a requirement) is uncertain.
15.
At present, the Authority considers that the total of the Potential Redress
Payments to be made (if LFS is made subject to such a requirement) will not
exceed £306 million.
16.
In its latest regulatory return, LFS reported that it holds capital of
[REDACTED]. This figure is above LFS’s minimum capital requirement of
[REDACTED]. The Authority understands that, in addition, in respect of any
requirement to pay the Potential Redress Payments (if made), LFS may
benefit from insurance coverage up to the sum of [REDACTED].
17.
As such, the Authority currently considers that there is a likelihood that the
quantum of the Potential Redress Payments may exceed the financial assets
currently available to LFS. As such, the Authority considers that, in the event
that a requirement to make the Potential Redress Payments was made, and
the quantum of the Potential Redress Payments exceeded LFS’s currently
available assets, LFS would be unable to pay such financial orders while
continuing to comply with the Appropriate Resources Threshold Condition.
18.
In communications with the Authority, the Proposed Controllers have
confirmed that, while they are supportive of the unitholders of the WEIF
achieving appropriate redress (if due), prior to the Proposed Acquisition
completing, beyond agreeing to retain within LFS its currently available assets
and resources, they are not able to make any commitment to the provision of
further financial support for the Potential Redress Payments beyond LFS’s own
resources.
19.
On 9 September 2022, the Authority gave the Proposed Controllers a warning
notice (“the Warning Notice”), proposing to approve the Proposed Acquisition
subject to the Conditions. The Proposed Controllers made representations to
the Authority on 11 September 2022 and 12 September 2022 in which they
asserted that the Authority should not make approval of the Proposed
Acquisition subject to the Conditions. The Authority has considered these
representations in making this decision.
IMPACT OF THE ASSESSMENT CRITERIA
20.
The regulatory provisions relevant to this Decision Notice are referred to in
21.
When assessing the proposed acquisition of an authorised person, the
Authority is required to consider the financial soundness of the acquisition in
order to ensure the sound and prudent management of the authorised person
and may object to a proposed acquisition only if there are reasonable grounds
for doing so on the basis of various matters set out in section 186 of the Act,
which include whether the authorised person will be able to comply with its
prudential requirements (which includes the Appropriate Resources Threshold
Condition).
22.
The Authority considers that there are reasonable grounds to object to the
Proposed Acquisition since, if the Proposed Acquisition is completed, and in
the event that the Authority requires LFS to make the Potential Redress
Payments and the quantum exceeds its available assets and resources, there
is a risk that LFS will be unable to pay the Potential Redress Payments.
23.
As a result, the Authority considers that, in the absence of appropriate
conditions, it would propose to object to the Proposed Acquisition. However,
the Authority considers that its concerns about LFS’s ability to meet the
Potential Redress Payments could be satisfactorily mitigated by imposing
conditions on its approval of the Proposed Acquisition which ensure that, in
the event that a requirement is imposed to make the Potential Redress
Payments, and LFS is unable to make the Potential Redress Payments in full
from its available assets and resources, the Proposed Controllers will commit
to make arrangements which make up the Potential Shortfall.
24.
To that end, the Authority considers it appropriate to impose the Conditions
on its approval of the Proposed Acquisition which require the Proposed
Controllers to commit to arranging the provision of any finance necessary to
meet any part of the Potential Shortfall in the Potential Redress Payments, so
as to enable a maximum total sum payable under the Potential Redress
Payments of £306 million to be payable.
25.
The Authority has considered representations made by the Proposed
Controllers in respect of the Warning Notice. These assert that the approval
should not be made subject to the Conditions. The Authority nevertheless
considers, for the reasons outlined in this Decision Notice, that it is
appropriate to impose the Conditions.
26.
The Authority has therefore decided to approve the Proposed Acquisition
subject to the Conditions.
PROCEDURAL MATTERS
Decision maker
27.
The decision which gave rise to the obligation to give this Decision Notice was
made by the Executive Decision Maker.
28.
This Decision Notice is given under section 189(7) and in accordance with
section 388 of the Act. The following statutory rights are important.
The Tribunal
29.
Each of the Proposed Controllers has the right to refer the matter to which
this Decision Notice relates to the Tribunal. Under paragraph 2(2) of Schedule
3 of the Tribunal Procedure (Upper Tribunal) Rules 2008, the Proposed
Controllers have 28 days from the date on which this Decision Notice is given
to each of them to make a reference to the Tribunal. A reference to the
Tribunal is made by way of a signed reference form (Form FTC3) filed with a
copy of this Decision Notice. The Tribunal’s contact details are: The Upper
Tribunal (Tax and Chancery Chamber), Fifth Floor, Rolls Building, Fetter Lane,
London EC4A 1NL (tel: 020 7612 9730; email: uttc@justice.gov.uk).
30.
Further information on the Tribunal, including guidance and a link to ‘Forms
and further guidance’ which includes Form FTC3 and notes on that form, can
be
found
on
the
HM
Courts
and
Tribunal
Service
website:
chamber.
31.
A copy of Form FTC3 must also be sent to Alexander Walsh at the Financial
Conduct Authority, 12, Endeavour Square, London, E20 1JN (email
alexander.walsh@fca.org.uk) at the same time as filing a reference with the
Tribunal.
32.
Once any such referral is determined by the Tribunal and subject to that
determination, or if the matter has not been referred to the Tribunal, the
Authority will issue a Final Notice about the implementation of that decision.
Access to evidence
33.
Section 394 of the Act does not apply to this Decision Notice.
Confidentiality and publicity
34.
This Decision Notice may contain confidential information and should not be
disclosed to a third party (except for the purpose of obtaining advice on its
contents). Section 391(1A) of the Act provides that a person to whom a
Decision Notice is given or copied may not publish the notice or any details
concerning it unless the Authority has published the notice or those details.
35.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this Decision Notice relates. Under
those provisions, the Authority must publish such information about the
matter to which this Decision Notice relates as the Authority considers
appropriate. The information may be published in such manner as the
Authority considers appropriate. However, the Authority may not publish
information if such publication would, in the opinion of the Authority, be unfair
to the Proposed Controllers, prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.
FCA contacts
36.
For more information concerning this matter generally, contact Alexander
Walsh, Manager, Change in Control at the FCA (direct line: 020 7066 0008 /
email: alexander.walsh@fca.org.uk).
Emily Shepperd, Executive Director of Authorisations
ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS DECISION NOTICE
Change in control
1.
The requirement to notify the Authority when deciding to acquire control of an
authorised firm is set out in section 178 of the Act. It states that:
1)
A person who decides to acquire or increase control over a UK authorised
person must give [the Authority] notice in writing before making the
acquisition.
2)
For the purposes of calculations relating to this section, the holding of shares
or voting power by a person (“A1”) includes any shares or voting power held
by another (“A2”) if A1 and A2 are acting in concert.
3)
In this Part, a notice given under this section is a “section 178 notice” and a
person giving notice is a “section 178 notice-giver”.
2.
Acquiring control of a firm is defined in section 181 of the Act, as varied by
regulations issued under section 192 of the Act, as beginning to hold: 20% or more
of the shares in the firm, or its parent undertaking, 20% of the voting power in the
firm or shares or voting power as a result of which a person is able to exercise
significant influence over the management of the firm.
3.
Section 185 of the Act provides that:
(1)
Where [the Authority] receives a section 178 notice, it must—
a)
determine whether to approve the acquisition to which it relates
unconditionally; or
b)
propose to—
(i)
approve the acquisition subject to conditions (see section 187);
or
(ii)
object to the acquisition.
(2)
[The Authority] must—
a)
consider the suitability of the section 178 notice-giver and the financial
soundness of the acquisition in order to ensure the sound and prudent
management of the UK authorised person;
b)
have regard to the likely influence that the section 178 notice-giver will
have on the UK authorised person; and
c)
disregard the economic needs of the market.
(3)
[The Authority] may only object to an acquisition—
a)
if there are reasonable grounds for doing so on the basis of the matters
set out in section 186; or
b)
if the information provided by the section 178 notice-giver is incomplete.
4.
Section 186 of the Act provides that the matters specified in section 185(3)(a) are—
a)
the reputation of the section 178 notice-giver;
b)
the reputation, knowledge, skills and experience of any person who will
direct the business of the UK authorised person as a result of the
proposed acquisition;
c)
the financial soundness of the section 178 notice-giver, in particular in
relation to the type of business that the UK authorised person pursues
or envisages pursuing;
d)
whether the UK authorised person will be able to comply with its
prudential requirements (including the threshold conditions in relation
to all of the regulated activities for which it has or will have permission);
e)
if the UK authorised person is to become part of a group as a result of
the acquisition, whether that group has a structure which makes it
possible to—
(i)
exercise effective supervision;
(ii)
exchange information among regulators; and
(iii)
determine the allocation of responsibility among regulators; and
f)
whether there are reasonable grounds to suspect that in connection with
the proposed acquisition—
(i)
money laundering or terrorist financing (as defined in regulation
3(1) of the Money Laundering, Terrorist Financing and Transfer of
Funds (Information on the Payer) Regulations 2017) is being or
has been committed or attempted; or
(ii)
the risk of such activity could increase.
5.
Section 187 of the Act provides:
(1)
[The Authority] may impose conditions on its approval of an acquisition.
(2)
[The Authority] may only impose conditions where-
a)
If it did not impose those conditions, it would object to the acquisition,
or
b)
It is required to do so by a direction under section 187A(3)(b) or section
187B(3).
(3)
[The Authority] may not impose conditions requiring a particular level of
holding to be acquired.
(4)
[The Authority] may vary or cancel the conditions.
6.
Section 189 of the Act sets out the procedure by which the Authority must assess
the section 178 notice. It provides:
(1)
The Authority must act under section 185 within a period of 60 working days
beginning with the day on which the Authority acknowledges receipt of the
section 178 notice (“the assessment period”).
(2)
The assessment period may be interrupted, no more than once, in accordance
with section 190.
(3)
The Authority must inform the section 178 notice-giver in writing of—
(i)
the duration of the assessment period;
(ii)
its expiry date; and
(iii)
any change to the expiry date by virtue of section 190.
(4)
The Authority must, within two working days of acting under section 185 (and
in any event no later than the expiry date of the assessment period)—
(i)
notify the section 178 notice-giver that it has determined to approve the
acquisition unconditionally; or
(ii)
give a Warning Notice stating that it proposes to—
a.
approve the acquisition subject to conditions; or
b.
object to the acquisition.
(5)
Where the Authority gives a Warning Notice stating that it proposes to
approve the acquisition subject to conditions—
(i)
it must, in the Warning Notice, specify those conditions; and
(ii)
the conditions take effect as interim conditions.
(6)
The Authority is treated as having approved the acquisition if, at the expiry of
the assessment period, it has neither—
(i)
given notice under subsection (4); nor
(ii)
informed the section 178 notice-giver that the section 178 notice is
incomplete.
(7)
If the Authority decides to approve an acquisition subject to conditions or to
object to an acquisition it must give the section 178 notice-giver a Decision
Notice.
(8)
Following receipt of a Decision Notice under this section, the section 178
notice-giver may refer the Authority's decision to the Tribunal.
7.
Section 191F of the Act provides (as relevant):
(3)
A person who contravenes an interim condition in a warning notice given
under section 189(4)(b)(i) or a condition in a decision notice given under
section 189(7) or a final notice which confirms a decision notice under that
section is guilty of an offence.
(8)
A person guilty of an offence under subsection … (3) … is liable-
(a) on summary conviction to a fine not exceeding the statutory maximum;
or
(b) on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine, or both.
Threshold conditions
8.
The threshold conditions are the minimum requirements which any authorised
person must meet. In respect of authorised persons which are not PRA-authorised
persons, these are set out in Part 1B of Schedule 6 to the Act. Paragraph 2D of Part
1B of Schedule 6 to the Act sets out the Appropriate Resources Threshold Condition.
It states (as relevant):
(1) The resources of [the authorised person] must be appropriate in relation to the
regulated activities that [the authorised person] carries on or seeks to carry on.
(2) The matters which are relevant in determining whether [the authorised person]
has appropriate resources include—
(a) the nature and scale of the business carried on, or to be carried on, by
[the authorised person];
(b) the risks to the continuity of the services provided by, or to be provided
by, [the authorised person];
(c) [the authorised person]'s membership of a group and any effect which
that membership may have.
(3) Except in a case within sub-paragraph (3A), the matters which are relevant in
determining whether [the authorised person] has appropriate financial resources
include—
(a) the provision [the authorised person] makes and, if [the authorised
person] is a member of a group, which other members of the group make, in
respect of liabilities;
(b) the means by which [the authorised person] manages and, if [the
authorised person] is a member of a group, by which other members of the
group manage, the incidence of risk in connection with [the authorised
person]'s business.
9.
Relevant guidance is contained in Chapter 11 of the Supervision Manual (“SUP”),
which is part of the Regulatory Processes section of the Authority’s Handbook. SUP
11.7.1G refers to the statutory approval requirements contained in sections 185
and 186 of the Act.
10.
SUP 11 Annex 6G refers to the aggregation of holdings for the purpose of prudential
assessment of controllers.