Investors should receive clearer warnings surrounding the risks of fund suspension, according to the Association of Investment Companies (AIC) chief executive Ian Sayers.

Sayers has challenged statements made by Financial Conduct Authority (FCA) head Andrew Bailey about the information given to investors in Neil Woodford’s suspended Equity Income Fund.

In an observation presented to the Treasury Select Committee, Bailey said: “Suspension is a tool that is very clearly set out in the prospectus.”

The FCA head added that he considered this to be a fair warning, which Sayers disagreed with.

In a letter addressed to former Treasury Select Committee chair Nicky Morgan, Sayers acknowledged that the Woodford Equity Income Fund prospectus includes a full disclosure of the rules applying where a suspending is required. However, he argued that this does not provide any “real insight to investors about the risk, if they read the disclosure at all”.

On the prospectus, he said: “This section does not provide any insight into the circumstances when a suspension might arise nor its likelihood. The term ‘suspension’ does not feature in the Risk Factors identified in the prospectus.

“The 16th detailed warning (out of 21) says “Unlisted companies are not generally publicly traded. As there may be no open market for a particular security it may be difficult to sell and cause liquidity issues”. A lawyer might argue a technical case that this addresses the issue of suspension, but this somewhat oblique reference cannot be characterised as an accessible disclosure for the non-professional investor.”

“It is difficult to see how any ordinary investor would have understood the risk that the fund was likely to suspend.”

The letter was sent to the committee last month and released yesterday, with Sayers noting that it was “unreasonable to think that these disclosures provide any ordinary investors with any appreciation of the implications of a suspension or how likely such an event might be”.

“The regulator should not be relying upon these materials to reduce the consumer risks which have been brought to the fore by this episode,” he claimed.

MoneyAge has contacted the FCA for a response.

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