Wednesday 16 January 2019

City watchdog warns company bosses about preference shares after Aviva row

The Financial Conduct Authority has advised firms to make terms and conditions clear to investors.

Andrew Bailey wrote a letter to company bosses on Thursday (PA)
Andrew Bailey wrote a letter to company bosses on Thursday (PA)

By Helen Cahill, Press Association City Reporter

The City watchdog has warned companies about how they treat preference shares following its spat with Aviva.

The Financial Conduct Authority (FCA) criticised the insurance giant after the company said it would cancel £450 million worth of preference shares, which entitle investors to high fixed dividends.

Aviva rowed back on its decision following an outcry from investors and the FCA, which threatened to launch an investigation.

On Thursday, the FCA told chief executives that it was reviewing the market for preference shares, saying Aviva’s claim that it could cancel shares had affected their price, as well as the price of similar shares issued by other companies.

FCA chief Andrew Bailey said listed companies should be aware that an intention to cancel preference shares could amount to market abuse.

He said investors should be informed of the terms and conditions attached to their ownership of preference shares, and that any changes to those terms should be communicated effectively.

The FCA has recommended that companies communicate terms and conditions to investors in a Q&A document which should clarify how the rights attached to shares could be altered by the company.

In a letter to company bosses, Mr Bailey said: “The FCA wants to ensure investors have access to the information that they require in order to properly assess the risks and rewards attaching to such shares.

“In the event that you have publicly stated or propose to publicise your company’s intentions regarding such securities, I would urge you to also set out the governance process and the approach to disseminating any future changes you might make.”

Mr Bailey said companies should seek to work out whether investors understand the terms and conditions regarding preference shares by looking at the market price of those shares, and by consulting with advisers.

Press Association

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