The Financial Conduct Authority has said Neil Woodford had a “defective and unreasonably narrow” understanding of his responsibilities for managing his fund, which was suspended in 2019.
The regulator has set out its proposed action against Woodford and Woodford Investment Management.
In a statement, the FCA has also criticised Link Fund Solutions, the administrator of Woodford Equity Income, for failing to act with “due skill, care and diligence” in carrying out its role.
Link Group, LFS's parent company, has already agreed to make a voluntary contribution to the redress as it considers it has no legal responsibility for the obligations of LFS.
The redress payment is made up of LFS's assets plus part of the proceeds from the sale of LFS (without the Woodford liability) to Dublin-based Waystone Group.
Today (April 11) the FCA issued its final notice to Link, in which it said the company failed to manage the liquidity of the fund from July 31, 2018 until it was suspended just under a year later.
It also said it failed to manage how easily assets in the fund could be turned into cash - so investors could access their money at short notice.
The regulator also revealed it has issued a warning notice statement to Neil Woodford and Woodford Investment Management.
It confirmed there were no other parties under investigation in relation to the fund.
The notice read: “The FCA considers that during the relevant period (July 31, 2018 to June 3, 2019) Mr Woodford held a defective and unreasonably narrow understanding of his responsibilities for managing [Woodford Equity Income's] liquidity risks.”
It added he failed to ensure the fund had an appropriate liquidity profile.
The warning notices given to Woodford and his firm are not the FCA's final decisions and the regulator said any final decision would be made public.
The Link final notice confirms the failings which led to the FCA's investigation and subsequent agreement to pay compensation to those affected.
Those invested in the fund when it was suspended started to receive a share of the up to £230mm redress scheme, which was approved by the High Court in February.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “Link Fund Solutions' job was to properly manage the Woodford Equity Income fund and to protect investors' interests. Their failings led to losses for those trapped in the fund when it was suspended.
"It is right that they compensate investors for the losses that resulted from their failings, and we're pleased that the scheme has started making payments."
A Link spokesperson said: “As we have previously stated, LFSL entered into a conditional settlement agreement with the FCA and Link Group expressly on the basis that there is no admission of liability.
"If the scheme had not been approved, LFSL would have challenged the FCA's findings and defended itself against any claims made against it by scheme investors.
