The FCA’s investigation into breaches of the ‘Listing Rules’ and ‘Transparency Rules’ discovered that this announcement was “reasonably capable of giving the impression that Aviva intended to take action to cancel at par value certain preference shares” which, at the time of issue, had been described as irredeemable. The FCA outlined that at the time, the preference shares were trading above their par value and so the statement caused concern that holders would incur losses on cancellation.
The market price for Aviva’s preference shares fell between 20% and 26% at the close of market on that day as holders took action to sell at the above par market price and retail investors made up a significant proportion of affected shareholders. Aviva clarified the statement and provided a payment scheme for those affected shareholders and the FCA deemed Aviva’s breach to be “serious but not intentional.”
In a statement, the FCA said: “[We] found that Aviva failed to consider properly its obligations under the rules to take reasonable care to ensure the announcement was not misleading. In particular, Aviva failed to consider adequately how the announcement might be interpreted by the market, especially the holders of the preference shares.
“Aviva knew that a significant proportion of the preference shareholders were retail investors, but it did not make clear that it had made no decision to cancel the preference shares, and it did not clarify that there were other options available to Aviva for retiring the preference shares, including the use of compensatory measures, that would enable holders of the preference shares to receive more than par value.”
The FCA found that it should have been obvious that the announcement had the potential to mislead preference shareholders into believing the company intended to cancel its preference shares at par. The financial watchdog recognised, however, that Aviva acted to clarify this unintentional breach and provided a payment scheme for affected preference shareholders.
Accordingly, the FCA said, it is appropriate to issue a public censure
“This was a significant oversight by Aviva that confused the market for preference shares,” said Mark Steward, executive director of enforcement and market oversight. “Firms must ensure that announcements to the market are clear and not misleading. But for Aviva’s prompt clarification and the payment scheme, this case could have led to a financial penalty.”
In a statement responding to the censure, Aviva said: “The Financial Conduct Authority has today published the outcome of its investigation into Aviva’s announcement on preference shares in March 2018. Aviva accepts this decision. This was a disappointing episode for which we are sorry and lessons have been learned. We recognise the uncertainty created for preference shareholders two years ago whilst we were considering our options and we subsequently made discretionary goodwill payments to impacted preference shareholders.”
