(Adds detail on allegation, reaction from Woodford lawyers)
By Huw Jones and Kirstin Ridley
LONDON, April 11 (Reuters) - Neil Woodford, the former star stock picker whose flagship fund collapsed in 2019, trapping around 300,000 investors, had a "defective and unreasonably narrow" understanding of his responsibilities, Britain's markets regulator said on Thursday.
Setting out findings in a warning notice about proposed regulatory against the fund manager and his Woodford Investment Management (WIM) company, the Financial Conduct Authority $(FCA)$ said he had failed to ensure sufficient liquidity.
WilmerHale, the law firm representing Woodford and WIM, said it would challenge the findings, which they labelled "unprecedented and fundamentally misconceived".
The failure of Woodford Equity Investment Fund (WEIF), after outsized bets on illiquid assets, sparked an FCA investigation, three investor lawsuits against LFS (Link Fund Solutions) and one against investment platform Hargreaves Lansdown , which promoted the fund.
The FCA confirmed on Thursday that there were no other parties under investigation over fund's failure.
WilmerHale said the FCA announcement of enforcement action came nearly five years after an investigation into the fund's collapse and focused only on the fund's liquidity profile.
"It is striking that the FCA's only criticisms of Neil Woodford relate to his involvement in matters relating to the fund's liquidity framework, which was, in fact, Link's responsibility ... and the FCA," the law firm said in a statement.
The framework used to monitor the fund's liquidity were set by LFS and staff at WIM were told by LFS that the FCA and the depositary knew those details, WilmerHale said.
"In fact, WIM knew that the FCA had been monitoring the fund's liquidity continuously since the beginning of 2018," it added.
Those invested in the WEIF when it was suspended are starting to receive a share of up to 230 million pounds ($289 million) in redress from LFS, which was approved by London's High Court in February.
The FCA also said that the fund's authorised corporate director, Link Fund Solutions $(LFS.AU)$, had failed to act with due skill, care and diligence in its management of the fund.
The watchdog said it could not provide further details on proposed sanctions against Woodford.
($1 = 0.7966 pounds)
(Reporting by Huw Jones, editing by Kirstin Ridley and David Evans)
((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters Messaging: huw.jones.thomsonreuters.com@reuters.net))
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