Aviva censured over ‘serious but not intentional’ preference shares breach

In March 2018, the FCA confirmed its investigation into whether Aviva broke market abuse regulations with plans, which were ultimately scrapped following shareholder outcry, to cancel £450m of preference shares.

In today’s announcement, the regulator stated: “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.”

Because of this, the regulator found that “it should have been obvious that the announcement had the potential to mislead preference shareholders into believing Aviva intended to cancel its preference shares at par”. 

While the regulator noted the breach was “serious”, it added that it was “not intentional.”

“The FCA also recognises that Aviva acted to clarify the announcement and provided a payment scheme for affected preference shareholders. Accordingly, it is appropriate to issue a public censure,” the regulator concluded.

Mark Steward, FCA executive director of enforcement and market oversight, 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.”

In a statement today, Aviva said: “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.”