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FCA reviews preference share market following Aviva backlash

The FCA is reviewing the market for preference shares following the furore over Aviva’s recent decision to cancel its high-yielding preference shares at par value.

FCA chief executive Andrew Bailey says in a Dear CEO letter that the regulator is reviewing the prevailing market for certain fixed income shares, particularly those classed as perpetual, irredeemable or in some other way that suggests permanence.

The regulator is also urging companies to make sure investors have access to the information that they require in order to properly assess the risks and rewards attached to such shares.

The news comes after the FCA’s probe into Aviva over its plans to cancel £450m of high-yielding preference shares at par value, a decision which it u-turned on following a backlash from investors.

Listed companies will also need to consider whether any intention to cancel or otherwise retire a class of irredeemable shares, or similar shares, at a price based on factors other than the prevailing market price, or their company’s deliberation on any such intention, constitutes inside information.

Bailey says in the letter: “I would urge you to ensure that these details are available for your company’s shares and also to consider, in conjunction with your advisers if necessary, whether there is a risk that the prevailing market price of any of your company’s shares or other signals from investors suggest that there is a lack of understanding over the terms and conditions of those shares and/or your company’s intention regarding them.

“We recognise that there is a tension between investors’ desire to see a permanent resolution to any remaining concerns and the desire of company boards not to limit their (and their successors’) scope for action. However, 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.”

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