Powers to require listed companies to pay redress for an act of market abuse have been used by the FCA for the first time and it estimates Tesco will pay redress of £85 million.

By taking this constructive approach, the Financial Conduct Authority has resolved issues more quickly for investors without the need for litigation. As significant numbers of retail investors are likely to receive redress, the FCA has balanced two of its statutory operational objectives: protecting consumers while maintaining and protecting the integrity of the UK financial system. The FCA is clear that conduct by issuers in primary markets affects the integrity of investments.

There are unambiguous messages to senior business leaders about accountability as the FCA’s CEO, Andrew Bailey, commented:

“Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets … Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct.”

Tesco plc and Tesco Stores Limited agreed that they committed market abuse in relation to a trading update published on 29 August 2014. As the statement gave a false or misleading impression about the value of publicly traded Tesco shares and bonds, the redress will cover the period between the statement being made and the correction on 22 September 2014.

The FCA used powers set out in s.384 of the Financial Services and Markets Act 2000 to require Tesco to pay redress in relation to an act of market abuse. The scheme details should be finalised by 31 August 2017.

Tesco Stores Limited also announced that it has entered into a deferred prosecution agreement with the Serious Fraud Office relating to false accounting and it will pay a fine of £128,992,500. The DPA concerns only the potential criminal liability of Tesco Stores Limited. This is material to the FCA decision not to impose a financial penalty or additional sanction.

A summary of S.384 FSMA 2000: the FCA has the power to require the distribution of profits or payment of redress for loss among affected persons if it is satisfied that the person concerned has contravened restrictions on or been knowingly concerned in market abuse, or has encouraged, required or failed to prevent market abuse.

Note: the FCA’s final notice explains that the SFO has started criminal proceedings in relation to other parties in relation to these issues. A contempt of court order has been made in respect of the reporting of the DPA. This says:

“any report of any proposed or agreed [DPA] between Tesco Stores Limited and the [SFO], shall be … clear … that any DPA: a. concerns only the potential criminal liability of Tesco Stores Limited; and b. does not address whether liability of any sort attaches to Tesco PLC or any employee or agent of Tesco PLC or Tesco Stores Ltd.”