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FCA probes Aviva's preference share threat

FCA chief executive Andrew Bailey says regulator is examining whether insurer's threat to cancel shares broke market abuse rules.

FCA probes Aviva's preference share threat

Update, adds Nicky Morgan response: The Financial Conduct Authority (FCA) is reviewing whether Aviva's plan to cancel its high yielding preference shares broke market abuse rules. 

The regulator said it welcomed the move by Aviva to scrap the plans in a letter to Treasury Select Committee chair Nicky Morgan.

FCA chief executive Andrew Bailey (pictured) said the regulator was conducting enquiries into Aviva’s compliance with the rules and would establish whether there was scope foe a more wide-ranging investigation.

Aviva last week backed down on its plan to cancel the high-yielding shares, after opposition from retail investors, fund managers and MPs.

Until then, Aviva had stood firm, arguing cancelling the shares was one of a number of options it was examining to balance the interests of ordinary and preference shareholders.

Aviva's threat to cancel the preference shares at par, announced alongside full-year results earlier this month, sparked a heavy sell-off, wiping out much of the big premiums at which they had traded due to their high yields.

The investments have since recovered much of their value since Aviva backed down over the plans, but Thomson Reuters data shows around eight million of the shares changed hands at depressed prices.

Campaigner Mark Taber has meanwhile questioned Aviva's communication of the plans, initially announced in just five lines towards the end of its main results announcement.

The sell-off only began later on the day the results had been announced, when Taber tweeted about the move.

That meant fund managers like Chris Ainscough, manager of the £70 million Charles Stanley Monthly High Income fund, was able to sell most of his position in the shares before the drop in value.

The episode has also had a knock-on effect on the wider preference shares market, with most now trading at lower levels after Aviva's move amid investor wariness.

In his letter, Bailey (pictured) said that the FCA’s immediate concern was to understand the basis on which Aviva was acting. The watchdog’s enquiries are focusing on those shareholders who may have lost out as a result of the initial announcement.

'Our immediate concern had been to understand the basis upon which Aviva was acting, including the clarity of the information available to securities holders (and as such we asked the company to provide the further information on its website in the week commencing 12 March) along with the market integrity concerns that the proposals raised.'

‘While the company's proposals are not now going ahead, given the impact on the broader market for listed preference shares, and the important role we play in ensuring market integrity, we see value in a broader review of the legal issues that this case has raised along with consideration of how best to ensure a market wide understanding of the rights and terms of preference shares.   

‘However, we would note that consideration of legal changes which would prevent the approach proposed by Aviva would not necessarily be within the powers of the FCA.’

Nicky Morgan welcomed the FCA's response to her letter. 'The FCA rightly highlighted the legal uncertainty surrounding the rights and terms of preference shares. I expect that the Treasury will consider how best to resolve this uncertainty as a matter of urgency,' she said.

9 comments so far. Why not have your say?

John Lumbroso

Mar 28, 2018 at 10:47

I am glad to hear that Aviva has backed down, what they had proposed to do was sheer robbery and the director should get the sack. I have shares in Aviva ordinary and insurances I shall be avoiding Aviva in the future

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Norman E

Mar 28, 2018 at 11:12

Whilst the FCA may not be able, by itself, to make the legal changes that are required to protect preference shareholders in future, it can and should tell the Government what changes need to be made and lobby for those changes to be implemented.

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Garth Nicholson

Mar 28, 2018 at 17:17

Exactly right Norman. Given the FCA's slow speed in the past and it's general desire to remain firmly on the fence it will take a lot of push to get anything done. I don't hold Aviva prefs but I do hold others and I dislike the present disorderly market that Aviva's statement has produced. Let's hope that Nicky Morgan gets her teeth in to this.

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Mar 28, 2018 at 17:39

Why Aviva? - something that is not proceeding when both the fca and the pra have sat on their hands in respect of similar events in the past. Why no investigation into the shenanigans at the Coop Bank last year and before that Lloyds Bank ECNs? There are others before that. Why is Bailey trying to play the good guy now? Answer, because he wants to be the next Governor.

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andrew moffat

Mar 28, 2018 at 21:42

As I previously reflected, heads must roll over this. It seems the Chairman was not on the ball; he should have quashed this at the outset. Probably, he should go and so should either the CEO or the CFO.

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Mar 30, 2018 at 09:30

"Regulators were told of Aviva’s plans to cancel its “irredeemable” preference shares weeks before the announcement on March 8 and did nothing to stop it, The Times has learnt.

Aviva provoked a storm when it announced the plan to cancel £450 million preference shares at par. It climbed down after 15 days, saying it had abandoned the proposal. Both the Financial Conduct Authority and the Prudential Regulation Authority were given notice of the intended announcement."

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Garth Nicholson

Mar 30, 2018 at 10:10

Another example of the weakness of our Regulators. Until forced to consider the in depth affect of Aviva's proposal by Mark Taber and the Treasury Select Committee they sat meekly in their usual position - astride the fence. It would seem their creed is to do nothing that would ruffle the water and impede the job promotion ride whilst drawing the fat salaries.

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Cynical Investor

Mar 31, 2018 at 10:56

Suggest Aviva's climbdown is more too do with the strong representation from Major Institutions!

Trust the AGM in May will see a huge turnout in order too remove those responsible for this tardy affair?

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Garth Nicholson

Mar 31, 2018 at 11:42

Almost certainly Aviva's failure to get the Institutions on side didn't help their attempted theft of the Prefs. Once the Institutions are on side then life gets considerably more difficult for the PI.

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