FCA issues public censure over Aviva’s preference share miscommunication

The FCA has this week issued a public censure regarding insurer Aviva’s misconduct in 2018, when it published an unclear announcement that suggested that certain preference shares would be cancelled at par value, leading to an escalation of shareholder sales.

The FCA’s investigation centred around an announcement Aviva made in March 2018 in conjunction with its preliminary year-end results – the regulator found this to be a breach of the Listing Rules and Transparency Rules as the announcement “was reasonably capable of giving the impression that Aviva intended to take action to cancel at par value certain preference shares”.

A preference share entitles the holder to a fixed dividend – these payments take priority over ordinary share dividends.

At the time of the announcement, Aviva’s preference shares were trading above their par value, hence the statement caused concerns that holders would lose out if their shares were cancelled. The day of Aviva’s announcement, preference shares fell between 20% and 26% as shareholders attempted to mitigate the potential cancellation by selling their shares at above par market price. The FCA added it was primarily retail investors that were affected.

In fact, Aviva had no intention to cancel its preference shares – it clarified this in a regulatory announcement on 23 March 2018 and also established a payment scheme for affected shareholders who had sold their shares following the initial announcement.

Not intentional

Due to this mitigating action, the FCA declared that “Aviva’s breach was serious but not intentional”.

The FCA “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”.

Mark Steward, executive director of enforcement and market oversight at the FCA, described the incident as a “significant oversight”.

He said: “This was a significant oversight by Aviva that confused the market for preference shares. 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.”

A spokesperson for Aviva added: “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.”