* Woodford suspended Equity Income Fund on Monday
* FCA says looking at Guernsey stock listings
* St James's Place pulls mandate from firm
* Suspension to be reviewed at least every 28 days
* Suspended fund drops 3% in price since Friday (Recasts with FCA, St James's Place, Hargreaves, Morningstar, updates prices)
By Carolyn Cohn and Simon Jessop
LONDON, June 5 (Reuters) - Britain's financial watchdog said it was examining a decision by a frozen Woodford fund to list investments in Guernsey, as wealth manager St James's Place pulled 3.5 billion pounds ($4.45 billion) from the firm in a widening fall-out from the suspension.
In a rare event, British fund manager Neil Woodford suspended trading late on Monday in his 3.7 billion pound ($4.70 billion) flagship Equity Income Fund after an increase in demand by clients to take back their money.
That followed a period of underperformance that had seen billions of pounds exit in outflows.
Woodford, one of Britain's highest-profile money managers and a particular favourite of retail investors, told investors he needed to prevent them leaving in order to give him time to sell out of a number of unlisted or illiquid positions.
Orders to trade in the fund placed after 1100 GMT last Friday have been rejected due to its suspension, leaving investors not knowing when they will get their money back.
The situation is having an impact on firms close to Woodford and has focused attention on the regulator.
The Financial Conduct Authority said it was talking to the fund's administrator and Guernsey's stock exchange about Woodford's decision to list some of the fund's assets on the exchange.
Woodford favoured unlisted stocks in the fund but critics say he tended to keep those holdings close to the 10% regulatory limit for investments in unlisted assets that funds like Woodford's face.
"Where the FCA believes there are circumstances suggesting serious misconduct or non-compliance with the rules, it may open an investigation," the watchdog said in a statement.
A spokesman for Woodford Investment Management could not be reached for comment.
The head of the FCA said earlier on Wednesday that the regulator stood ready to intervene if it had concerns over the way the suspension was managed.
St James's Place said it had terminated a mandate with Woodford Investment Management, stressing that none of its assets were part of the suspended fund.
Shares in fund platform Hargreaves Lansdown have taken a hit because of its connection to Woodford, down 10% since Monday's open, prompting it to come out fighting on Wednesday.
Hargreaves said it would waive fees on its platform for investors in the suspended fund and called on Woodford to do the same.
Fund rating firm Morningstar cut the suspended fund's rating to "negative" from "neutral" on Wednesday, its second downgrade in a month, citing a period of heightened redemptions and saying its strategy was "structurally impaired" following the suspension.
In a video posted on the company's website on Tuesday, close-shaven Woodford, 59, wearing a blue sweater against the backdrop of a large, modern living room, told investors he was "extremely sorry" to have suspended the fund.
He said the decision was "motivated by your interests, our investors". [https://woodfordfunds.com/words/blog/suspension-update-from-neil/ ]
The suspension will be reviewed by the fund's adviser at least every 28 days, and the FCA will be informed of the reviews, Woodford said in a Q&A document for clients on its website, posted on Wednesday.
Among the fund's biggest positions in unlisted companies are BenevolentAI and Oxford Nanopore, although it also has large stakes in smaller, listed companies which trade much less frequently than larger peers and so take longer to sell.
Despite that, Woodford's website Q&A said the fund was not a forced seller. "Neil has the time and space to deliver on his strategy to place the unquoted parts of the portfolio with interested buyers," it said.
Jonathan Miller, UK director of manager research ratings at Morningstar, said Woodford could face further redemptions after the fund reopens, which would mean the firm needed to make quite deep changes to the portfolio.
"There is some reputational damage and current investors may simply prefer an exit when the fund re-opens," Miller said.
"They're going to need to access their money, so the portfolio will need to have a totally different make-up to that of today. How long it takes to reach that point is difficult to estimate – it certainly won’t be days from now."
Woodford said the fund would continue to be priced daily. The price fell by more than 3% between Friday, the cut-off date for redemptions, and Tuesday. The fund is down more than 14% in the last three months.
Another Woodford fund, Woodford Patient Capital Trust , into which Woodford has already shifted some of the Income Fund's unlisted assets, closed down 6.9%, bringing its losses to 14% this week.
($1 = 0.7869 pounds) (Reporting by Carolyn Cohn; Editing by Simon Jessop, Susan Fenton and Jan Harvey)