- The FCA said Aviva’s initial proposal to scrap the shares raised ‘serious issues’
- The watchdog said it will look into whether investors lost money
- Depending on the outcome of enquiries, a full-blown probe could follow
Aviva could be investigated by the City watchdog over its former plans to axe its high yield preference shares worth £450million.
Faced with anger from shareholders and mounting political pressure, the insurance group ended up backtracking on its proposals to scrap the preference shares.
But, the Financial Conduct Authority has said it is reviewing Aviva’s compliance with market abuse rules, which could spark a probe into the group’s conduct.
Possible probe: Aviva could be investigated by the City watchdog over its former plans to axe its high yield preference shares
Aviva’s original plans to cancel the preference shares, which pay out an average 8.5 per cent of their value every year, sent the price of the shares crashing by around 28 per cent.
Some shareholders claim they lost money as they sold the shares when the price was low.
In a letter from the FCA’s chief executive, Andrew Bailey, to the Treasury Select Committee, the UK’s financial watchdog said Aviva’s initial decision to scrap the shares raised ‘serious issues.’
‘It is the firm’s compliance with the Market Abuse Regulation that is forming the primary basis for the FCA’s enquiries’, Mr Bailey said.
Mr Bailey added that the FCA was focusing its enquiries on current and now potentially former preference shareholders ‘that may have lost out financially as a result of these events.’
In the money: Aviva’s chief executive, Mark Wilson, was paid £4.3million last year
The letter added: ‘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.’
The Treasury Select Committee’s chair, Nicky Morgan MP, had written to the FCA asking them to investigate how the preference shares had originally been marketed to investors and whether any rules had been broken.
The preference shares in question were issued over two decades ago in 1992.
Last week, Aviva said it was rowing back on its controversial proposal to cancel the preference shares.
The original proposal, which was made as part of a plan to return around £500million to shareholders, attracted criticism from investors and the FCA, even though Aviva said it had received legal advice that it could cancel its preference shares at par value.
News of the FCA’s enquiries came as it emerged Aviva’s chief executive, Mark Wilson, was paid £4.3million last year, including a £2.9million bonus.
Aviva’s share price is down 1.10 per cent or 5.5p today to 492.9p.