UK Regulator Warns CEOs of Listed Companies About Their Obligations on Irredeemable Preference Shares

The U.K. Financial Conduct Authority has published a "Dear CEO" letter to the Chief Executive Officers of U.K. listed companies on capital instruments expressed to be perpetual, irredeemable or in some other way that suggests permanence. The FCA wishes to ensure that investors have access to all the information necessary for them to be able to assess properly the risks and rewards attaching to such shares. The letter lists the information that listed companies may wish to make readily accessible to all holders and potential holders of such shares, including:

• the terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer or admission of the shares, and details of any changes made after the issue of the shares;
• the articles of association of the issuer, particularly the articles relevant to the shares concerned; and
• a Q&A or similar publication.

The FCA also advises listed companies to consider whether any intention (or the company's deliberation on any such intention) to cancel or otherwise retire a class of irredeemable, or similar, shares, at a price based on factors other than the prevailing market price constitutes inside information under Article 7 of the Market Abuse Regulation.

The letter states that companies should consider whether there is a risk that the prevailing market price of any of their shares or other signals from investors suggest there is a lack of understanding about the terms and conditions of those shares or the company's intention regarding them.

The FCA recognizes 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 (or their successors') scope for action. However, if a company has stated publicly, or proposes to publicise, its intentions regarding such securities, the FCA urges the company to ensure the public announcement also includes details of the governance process and the approach to disseminating any future changes that the company might make.

View the Dear CEO letter.