FINAL NOTICE

To:
Aviva plc

1.
ACTION

1.1.

1.2.

For the reasons given in this Notice, the Authority hereby publishes a statement

(pursuant to section 91 of the Act) to the effect that on 8 March 2018 Aviva

contravened certain provisions of the Listing Rules and the Transparency Rules.

Specifically, Aviva contravened Listing Rule 1.3.3R and Transparency Rule 1A.3.2.

It did so by failing to take reasonable care to ensure that information in an

announcement on 8 March 2018 regarding its ability to cancel certain Preference

Shares issued by Aviva and General Accident at par, and its consideration of

whether or not to do so, was not misleading and did not omit anything likely to

affect the import of the information in the announcement.

2.
SUMMARY OF REASONS

2.1.
The UK listing regime relies on disclosure and transparency to allow investors to

make fully informed decisions. It is of fundamental importance to achieving the

Authority’s strategic objective of ensuring the relevant markets function well, in

addition to its operational objective of protecting and enhancing the integrity of

the UK financial system, that market disclosures by listed companies, including

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those made voluntarily, are not false, misleading or deceptive and do not omit

anything likely to affect the import of the information that is disclosed. This

ensures that they can be relied on by investors in making investment decisions to

hold, buy or sell an investment.

2.2.
In the 8 March Announcement Aviva included the following statement (“the Key

“This year, we expect to deploy £2 billion of excess cash, including £900 million

in debt reduction, in excess of £500 million of capital returns to shareholders and

about £600 million for bolt-on acquisitions.

Our priorities for deployment remain unchanged. Our objective is to use surplus

cash to deliver sustainable benefits to shareholders. For 2018, we have outlined

our intent to repay approximately £900 million of expensive hybrid debt, saving

more than £60 million in annual pre-tax interest expense. We have allocated

approximately £600 million for bolt-on M&A, which includes the €130 million

already committed to the Friends First acquisition in Ireland. And we have

indicated that in excess of £500 million will be used for capital returns, which may

include liability management, share buy-back or special dividends.

In 2017, Aviva repaid debt of US$650 million and returned capital to shareholders

via a £300 million share repurchase program. With our Solvency II cover ratio

remaining above our working range, we have plans to reduce hybrid debt by a

further £900 million in 2018…

Aviva’s Group centre cash resources are £2.0 billion (February 2017: £1.8 billion).

Our intention is to maintain this in a range of £1.0 billion to £1.5 billion over time.

In view of our surplus capital and liquidity position and expected level of Group

centre cash receipts over the coming year, we anticipate having £3 billion

available for deployment in 2018 and 2019.

Our priorities for deployment of surplus cash and capital remain unchanged. We

prioritise profitable organic growth in our existing businesses. After allowing for

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this, we will look to reduce debt balances, consider bolt-on acquisitions and

provide additional capital returns.

In 2018, we have signalled our intention to reduce hybrid debt by £900

million. We are targeting more than £500 million in additional capital returns,

incorporating liability management and returns to shareholders. In this regard,

we have the ability to cancel preference shares at par value through a reduction

of capital subject to shareholder vote and court approval. The preference shares

carry high coupons that are not tax-deductible and they will not count as

regulatory capital from 2026. As we evaluate the alternatives, one of the things

we are considering is how to balance the interests of ordinary and preferred

shareholders.”

2.3.
The Key Statement focussed on Aviva’s intentions in 2018. It accurately stated

that Aviva had the ability to cancel the Preference Shares at par, subject to a

shareholder vote and court approval. However, it then referred to reasons why it

would make commercial and/or regulatory sense for Aviva to do so, without also:

(i) stating that no decision had in fact been made by Aviva in that regard; (ii)

referring to any countervailing reasons not to do so; and (iii) clarifying that other

options were available to Aviva for retiring the Preference Shares, including the

use of compensatory measures (that would enable holders of the Preference

Shares to receive more than par). The Key Statement was reasonably capable of

giving the holders of the Preference Shares and the market the impression that

Aviva intended to retire some or all of the Preference Shares in 2018 and that it

was probable Aviva would seek to do this by exercising the right to cancel at par

without compensatory measures, when this was not the case (“the Key Statement

Impression”).

2.4.
By failing to include in the Key Statement the information set out above, Aviva

omitted from it information likely to affect its import. By reason of the Key

Statement Impression, it was reasonably foreseeable that the holders of the

Preference Shares and the market would be misled by the Key Statement. Aviva

failed to take reasonable care to ensure that the Key Statement was not

misleading and did not omit information that was likely to affect its import.

2.5.
At the close of market on 8 March 2018, the market price for the Preference

Shares had fallen by between 20% and 26%.

2.6.
On 23 March 2018, Aviva issued a further announcement which expressly stated

(reflecting a decision taken the previous day) that “it has decided to take no action

to cancel its preference shares”.

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2.7.
In deciding to issue a public censure against Aviva, the Authority has taken

account of the following matters:

2.7.1.
The fact that the Preference Shares are capable of being cancelled is a

matter of law set out in statute. Aviva decided voluntarily to refer to this

within the 8 March Announcement out of a desire to be transparent about

rights associated with the Preference Shares, of which it believed the

market was broadly not aware.

2.7.2.
Whilst Aviva took steps in the preparation of the 8 March Announcement

specifically to assess whether the information contained in it complied

with its obligations under the Market Abuse Regulation, including

obtaining independent advice from a number of professional sources, the

Authority considers that these steps (which did not include obtaining

specific advice with respect to its obligations under the Listing Rules and

the Transparency Rules) were insufficient to meet all of Aviva’s

obligations, for the reasons set out below at paragraph 5.5.

2.7.3.
On 30 April 2018, Aviva announced a payment scheme for shareholders

who sold the Preference Shares in the period from 8 to 22 March 2018

(inclusive) at a share price that was lower than the price to which the

Preference Shares returned following the 23 March Announcement. The

scheme was launched on 31 July 2018 and closed on 31 January 2019.

This scheme was intended to put those shareholders in the same financial

position they would have been in had they sold their Preference Shares

following the 23 March Announcement, rather than in the period 8 to 22

March 2018. A total of 927 claims were made to Aviva under the scheme,

with an aggregate value of £7,258,373 paid by Aviva.

3.
DEFINITIONS

3.1.
In this Notice:

“the 8 March Announcement” means the 2017 Preliminary Final Year Results

announcement for Aviva and General Accident issued on 8 March 2018, referred

to at paragraph 1.2 above;

“the 23 March Announcement” means the announcement referred to at paragraph

2.7 above;

“the Act” means the Financial Services and Markets Act 2000;

“Aviva” means Aviva plc;

“the Authority” means the Financial Conduct Authority;

“CEO” means Chief Executive Officer;

“CFO” means Chief Financial Officer;

“General Accident” means General Accident PLC;

“the Key Statement” has the meaning set out in paragraph 2.2 above;

“the Key Statement Impression” has the meaning set out in paragraph 2.3 above;

“the Listing Rules” means those rules contained in the part of the Handbook

entitled ‘Listing Rules’;

“Main Market” means the London Stock Exchange’s main market for the admission

and trading of equity, debt and other securities;

“Market Abuse Regulation” means Regulation (EU) No 596/2014 of the European

Parliament and of the Council of 16 April 2014 on market abuse;

“Preference Shares” means the Aviva Preference Shares and the General Accident

Preference Shares;

“Aviva Preference Shares” means:


the 100 million cumulative preference shares (described at the time of

issue as “irredeemable”) with a par value of £1 each, issued at 100.875

pence per share by Aviva (then known as Commercial Union Plc), on 20

May 1992 with a fixed dividend rate of 8.75%; and


the 100 million cumulative preference shares (described at the time of

issue as “irredeemable”) with a par value of £1 each, issued at 100 pence

per share by Aviva (then known as Commercial Union Plc), on 18

November 1992 with a fixed dividend rate of 8.375%;

“General Accident Preference Shares” means:


the 140 million cumulative preference shares (described at the time of

issue as “irredeemable”) with a par value of £1 each, issued at 100.885

pence per share by General Accident on 2nd September 1992 with a fixed

dividend rate of 8.875%; and


the 110 million cumulative preference shares (described at the time of

issue as “irredeemable”) with a par value of £1 each, issued at 100.749

pence per share by General Accident on 2 March 1993 with a fixed dividend

rate of 7.875%;

“RIS” means regulatory information service;

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“Solvency II” means the EU legislative programme implemented in all 28 Member

States of the European Union, including the UK, on 1 January 2016. It introduced

a harmonised EU-wide insurance regulatory regime and implements a range of

requirements on insurers from corporate governance to risk management. It also

implements harmonised standards for the valuation of assets and liabilities; and

“the Transparency Rules” means those rules contained in chapter DTR1A of the

part of the Authority’s Handbook entitled ‘Disclosure Guidance and Transparency

Rules’.

4.
FACTS AND MATTERS

4.1.
Aviva is an insurance provider, the largest general insurer and a leading life and

pensions provider in the UK. It is a Main Market listed company in the FTSE 100.

4.2.
General Accident is part of the Aviva Group. In 2005 General Accident transferred

its interest in its subsidiaries to its parent company, Aviva. Aviva owns 100% of

General Accident’s ordinary issued share capital. The General Accident Preference

Shares remained listed on the Main Market following the merger in 2005.

4.3.
The Preference Shares were issued in 1992 and 1993. The Preference Shares have

cumulative fixed dividend rates of between 7.875% and 8.875%, and these

coupon payments are not tax deductible. In the relevant listing particulars, the

Preference Shares were stated to be “irredeemable”. Nevertheless (due to the

terms under which the shares were issued and section 641 of the Companies Act

2006) Aviva has the ability to cancel the shares at par, subject to a shareholder

vote and court approval. Alternatively, any issuer wishing to cancel shares has

the option of doing so on a voluntary basis by offering (tendering) to buy back

such securities from the holders.

4.4.
At the time of the 8 March Announcement, Aviva understood that retail investors

held about 28% to 45% of the Preference Shares.

Aviva’s consideration of the Preference Shares

4.5.
In around June 2017, Aviva began considering whether it should take steps to

reduce or remove the population of Preference Shares in issuance. This work

became known as ‘Project Silver’. The reasons for this included the following:

4.5.1.
Aviva’s financial position had improved over a number of years and Aviva

was in a strengthened capital position, with a cash surplus. It was

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therefore considering how to use the surplus cash, with possible options

including increasing investment in the business, support for the

company’s ongoing dividend, potential mergers and acquisitions and

returning capital, including a liability management exercise and paying

down high-cost debt.

4.5.2.
Aviva was considering the impact of Solvency II on its regulatory capital.

Under the Solvency II programme, additional classification requirements

were being introduced, which meant that certain types of security would

not count towards regulatory capital requirements from 2026. The

Preference Shares did not, and do not, meet these classification

requirements. Consequently, the Preference Shares would cease to count

as part of Aviva’s regulatory capital in 2026.

4.6.
As a result, from June 2017 Aviva began considering the Preference Shares in

light of the Solvency II requirements and the surplus cash position. As a part of

this consideration, Aviva:

4.6.1.
sought external advice on what options were available to it in relation to

any potential cancellation of the Preference Shares;

4.6.2.
sought external advice on the Solvency II risk; and

4.6.3.
undertook an independent survey of shareholders to obtain general

feedback and analysis on Aviva’s strategy and its ordinary share price.

4.7.
In early October 2017, Aviva received confirmation that the cancellation of the

Preference Shares was a legally viable option, subject to obtaining the approval of the

preference and ordinary shareholders, voting as a single class, and court approval.

From this point Aviva started detailed work to explore in detail the options, including:

4.7.1.
undertaking the preparatory work required to execute any of the options

of tender at a premium, tender at a lower price or capital cancellation at

par;

4.7.2.
engaging with the Authority and notifying the Prudential Regulation

Authority of the possible intention of removing the Preference Shares;

4.7.3.
considering Aviva’s disclosure requirements and whether they were in

possession of inside information;

4.7.4.
considering reputational risk which might arise if it cancelled the

Preference Shares from its issued share capital;

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4.7.5.
understanding the share ownership and the potential shareholder

reaction to cancellation of the Preference Shares; and

4.7.6.
obtaining external advice on the options, including how the court might

view the various options.

4.8.
Aviva was concerned that exercising the right to cancel the Preference Shares at par

could harm its relations with investors and its ability to access the capital markets,

and could be challenged. Aviva was not confident that it could secure the necessary

approval of 75% of all shareholders, that would be required to cancel the Aviva

Preference Shares, unless appropriate incentives were offered.
Aviva’s Treasury

team, when exploring the possibility of exercising the right to cancel the Preference

Shares at par, assumed that although the technical mechanism used would be

cancellation at par, Aviva would provide additional compensation to the Preference

Shareholders and therefore effectively pay a premium to par. As at 22 December

2017, the working assumption which the Treasury team had adopted was that Aviva

would pay 1.4 times the par value of any Preference Shares that were retired.

4.9.
During the course of its consideration of possible action in relation to the Preference

Shares, Aviva referred publicly to some of the work which was under way in relation

to the surplus cash position. For example, on 30 November 2017 at its Capital Markets

Day, Aviva informed the market it was considering a number of options in relation to

deploying surplus cash. It stated that it was expecting to deploy £3 billion of excess

capital and cash in 2018 and 2019 including deleveraging, bolt-on mergers and

acquisitions and capital returns. At the Capital Markets Day, Aviva stated it expected

to deploy £900 million for deleveraging and referred to hybrid debt repayment as part

of the programme. Aviva also stated it expected to deploy approximately £500 million

on capital returns which would include liability management and returns to

shareholders; however, Aviva did not provide any specifics for what any liability

management or returns to shareholders would be.

Board consideration of the Preference Shares

4.10. On 31 January 2018, Aviva held a Board meeting at which preliminary discussions

were held about the Preference Shares. One aspect of that discussion related to a

presentation on the various actions Aviva could take to remove the Preference Shares

from its issued capital and the risks, financial implications, next steps and approval

required to effect this. Four options in relation to dealing with the Preference Shares

were presented to the Board:

4.10.1.
Offer to buy back the Preference Shares at a premium to market value;

4.10.2.
Cancel the Preference Shares at par through a shareholder and court

approved reduction of capital (in accordance with section 641(4)(b)(ii) of

the Companies Act 2006);

4.10.3.
A combined tender offer and capital reduction, with tender at below

market price and any remaining Preference Shares post-tender cancelled

at par; or

4.10.4.
Leave some or all of the Preference Shares in Aviva’s capital structure for

the mid-longer term.

4.11. The Board Paper stated: “Whilst the most legally robust option to remove 100% of

the prefs. is to cancel them through a court sanctioned reduction of capital and return

par value to investors, there is a real risk that the Aviva pref. investors would be able

to block the necessary shareholders’ resolution (>75% approval of ordinary and

preference shareholders voting together) … This option is very aggressive and would

carry higher reputation and litigation risks than other more consensual options.”

4.12. At the Board meeting on 31 January 2018 there was strong disagreement among

Aviva’s Board members as to whether any ability to cancel the Preference Shares

could or should be exercised, and if so how. There were those who thought that Aviva

and General Accident should do nothing, as some of the preference shareholders were

the companies’ core customers and cancelling the shares would damage Aviva’s and

General Accident’s reputations; those who thought that it was in the companies’ best

interests to cancel the shares at par; and those whose views lay somewhere in

between. The then Chairman of Aviva was of the view that any cancellation should

not expose the preference shareholders to financial loss. The perception of Aviva’s

then CEO was that there were “incredibly divergent views” among the Board

members; that there was less consensus on this issue than on any other in five years;

and that “when you’ve got a board that was so fractured over the whole issue, it was

hardly a thing that was going to be imminent”.

4.13. At the conclusion of the meeting the Board members were divided as to the way

forward. The Board concluded that more work needed to be done on the potential

options, particularly from a reputational perspective, and requested immediately after

the Board meeting a further review to be completed before any decision could be

made. The Board did not accept a recommendation to set up a sub-committee to

work on developing specific options.

4.14. There was no decision by Aviva, either at or following the Board meeting, to take

action in respect of any of the Aviva Preference Shares in 2018, although Aviva

continued to consider it an option for future debt reduction. Action in relation to the

General Accident Preference Shares in 2018 also remained a possibility. Any action in

relation to the General Accident Preference Shares would be subject to approval by

the Board of General Accident, which had not considered what, if any, action to take

in relation to the General Accident Preference Shares. The minutes of a meeting of a

subcommittee of Aviva and General Accident held on 5 February 2018 to consider

whether Aviva and General Accident were in possession of inside information in

relation to the possible cancellation of the Preference Shares recorded in the relevant

part: “It was explained that Project Silver had been discussed at the Aviva plc Board

meeting on 31 January 2018. It was noted that whilst all options remained under

consideration, the Aviva plc Board was unlikely to take any action to retire the Aviva

Preference Shares at this stage due to the expense of a consensual buy-back and the

potential reputational impact of a resolution to cancel the Aviva Preference Shares

failing to receive sufficient support at the Aviva plc AGM.

It was further explained that the Aviva plc Board was more actively continuing to

consider its options in relation to the retirement of the GA plc Preference Shares,

including cancelling the GA plc Preference Shares through a Court sanctioned

reduction of capital (either at par or with an enhanced return to investors by means

of a special dividend) or leaving them in the Group’s capital structure for the mid-

longer term.

It was noted that the Aviva plc Board had been unable to reach a decision on which

of these options to pursue at this stage. It was explained that whilst there were clear

benefits to Aviva plc in retiring the GA Preference Shares at par, there were also

significant reputational risks associated with taking this action. It was noted that

further analysis was being conducted to better understand (i) the risk of Aviva’s future

access to the fixed income market becoming restricted as a result of the GA preference

Shares being cancelled at par; and (ii) the potential impact on the value of the ‘GA’

and ‘Aviva’ brands given the retail holding of the GA Preference Shares.

It was also noted that the GA plc Board had yet to consider Project Silver and that any

corporate action taken in respect of the GA Preference Shares would be subject to the

approval of the GA plc Board.

On the basis of the foregoing, it was agreed that the Group was not currently in

possession of inside information as a result of Project Silver and as such that no

announcement was presently required. In particular, it was agreed that it was too

early to say that there was a ‘realistic prospect’ that the GA plc Preference Shares

would be cancelled until the full impact analysis had been concluded. …”

Inclusion of the Preference Shares issue in the 8 March Announcement

4.15. By February 2018, Aviva had not settled upon a firm approach for its surplus cash

including any potential liability management exercise. Despite this, it was due to

provide an update on its progress in March 2018 (through its announcement relating

to its 2017 year-end results) to make the market aware that the deployment of the

surplus cash and the liability management exercise was still something it was actively

considering.

4.16. Although Aviva had not formed an intention to cancel the Preference Shares in 2018,

it was cognisant that this was an option it had actively considered, and one which it

had not previously identified to the market in the context of the liability management

exercise, unlike options such as the buyback of hybrid debt. Aviva was also concerned

that there was a lack of awareness in the market about the existence of the ability to

cancel the Preference Shares at par. In February 2018, Aviva therefore began to

consider whether it should include within its final year results (i.e. the 8 March

Announcement) details about the ability to cancel the Preference Shares at par. The

reasons for including this information were:

4.16.1.
to ensure that the market was aware that the Preference Shares could be

cancelled at par and would not necessarily have to be purchased at above

market price through a tender offer; and

4.16.2.
to be transparent with the market about options under consideration by

Aviva, of which the market was not aware.

4.17. From 5 February 2018, Aviva was actively engaged with a variety of external advisers

regarding the proposed inclusion of the liability management exercise and the

Preference Shares in the 8 March Announcement. Specifically, during this period,

Aviva actively considered, with its external advisers, whether:

4.17.1.
it could or should confirm that it was continuing to consider exercises on

more expensive instruments and those that would not be admissible

under the Solvency II capital requirements by 2026;

4.17.2.
the market would incorrectly interpret any such statement as an

indication that Aviva was going to make a tender offer at above market

price;

4.17.3.
it should note the ability for some of the securities to be cancelled under

their terms on a reduction of capital, even if it had not formed an intention

to take that corporate action in the immediate future;

4.17.4.
it had an obligation under the Market Abuse Regulation to make an

announcement about the right of cancellation; and

4.17.5.
in making such a statement it would be in compliance with the Market

Abuse Regulation. Aviva also asked its advisers to review the draft

statement in the light of “its more general disclosure obligations”.

4.18. Aviva’s first draft of the 8 March Announcement was circulated internally on 16

February 2018 and included wording about the Preference Shares in the ‘Capital &

Cash’ section. Aviva’s Board and certain other senior individuals, as well as its external

advisers, engaged throughout the drafting processes and a number of drafts of the

wording of the 8 March Announcement in relation to the Preference Shares were

created to reflect those discussions. In particular, on 16 February 2018 the draft stated

“In 2018, we have signalled our intention to reduce hybrid debt by £900 million. We

are targeting more than £500 million in additional capital returns, incorporating

liability management and returns to shareholders. In this regard, we are considering

all options with respect to General Accident plc and Aviva plc preference shares, which

we are able to cancel at par, subject to ordinary and preference shareholder vote.

These securities carry high coupons that are not tax-deductible and they will not count

as regulatory capital from 2026”.

4.19. On 19 February 2018, senior individuals within Aviva discussed whether to include the

reference to the ability to cancel the Preference Shares, mindful of the need to ensure

they were prepared for a significant level of enquiries from holders of the Preference

Shares and others, to which they expected the inclusion of such a reference to lead,

even where no firm commitment to cancel the Preference Shares was to be made.

4.20. Changes were made by senior individuals to the wording in relation to the Preference

Shares on 20 February 2018, to remove the words “we are considering all options in

respect to General Accident plc and Aviva plc preference shares, which we are able to

cancel at par” and replace them with “we have the ability to cancel preference shares

through a reduction of capital”.

4.21. An Aviva external adviser recommended on 22 February 2018 the inclusion, at the

end of the wording relating to Preference Shares, of the following: “We also note that

in the terms of the preference shares the issuer of the shares has the ability to cancel

those shares at par value through a reduction of capital, subject to the approval of

the relevant issuer’s ordinary and preference shareholders. We have taken no decision

as to the way in which we will implement those additional capital returns and will

continue to evaluate all available options”.

4.22. On 27 February 2018, Aviva sought advice from an external adviser on the wording

of the relevant aspects of the 8 March Announcement. On 28 February 2018, the

external adviser commented that they had a concern that including a reference to the

ability to cancel the Preference Shares might have a negative effect if Aviva then did

not follow through with the cancellation. There was no further discussion on this point.

4.23. Subsequently in February and early March 2018, a number of sub-committees of the

Board considered the draft wording relating to the Preference Shares in the 8 March

Announcement. They did not make any changes to the wording. However, it was

suggested that a reference to Aviva’s desire to balance the interest of ordinary and

preference shareholders be added. This was reflected in draft wording on 6 March

2018 removing the external adviser’s recommended wording (referred to at paragraph

4.21 above) and replacing it with: “As we evaluate the alternatives, one of the things

we are considering is how to balance the interests of ordinary and preferred

shareholders.” This wording appeared in the final version of the Key Statement.

Aviva’s external advisers saw this change of wording and did not object to it.

4.24. On 4 March 2018, a sub-committee of the Board was convened to consider whether

any information relating to the Preference Shares was inside information and Aviva’s

obligations in relation to any such information. The sub-committee noted that there

had been no further substantial developments in relation to Project Silver since the

Aviva Board meeting on 31 January 2018, when it was determined not to progress

Project Silver with a view to being ready to announce at the same time as the

announcement of the 2017 preliminary results. In particular, it noted that no further

discussions had been held in relation to Project Silver by either the Aviva Board or the

General Accident Board, that further impact analysis of any proposed course of action

was still required and that, as a result, no recommended course of action had been

identified. The sub-committee considered the Key Statement and whether there was

any law or regulation which would prevent Aviva from including the Key Statement in

the 8 March Announcement, noting that the Key Statement was likely to have a

negative impact on the market price of the Preference Shares. The sub-committee

concluded that information relating to the Preference Shares was not inside

information as there was still insufficient certainty about Project Silver. It also

concluded that the Key Statement could be included in the 8 March Announcement for

reasons including that the terms and conditions of the Preference Shares were publicly

available documents, the Solvency II measures were a matter of public record and

Aviva had sought advice on its obligations under the Market Abuse Regulation and had

been advised that the Key Statement could be included.

4.25. On 7 March 2018, the Board of Aviva met and discussed the draft of the 8 March

Announcement to be released to the market the next day and noted that “No decisions

had been taken and there was no current intention to take any action in respect of

[the Preference Shares]”. The draft of the 8 March Announcement presented to the

Board contained the Key Statement. The Board approved the draft 8 March

Announcement and did not comment on the wording of the Key Statement.

4.26. Aviva expected that the price of the Preference Shares would fall as a result of the 8

March Announcement and that some holders of the Preference Shares would be upset

or angered by the announcement.

4.27.
On 8 March 2018, Aviva published the 8 March Announcement through the London

Stock Exchange’s Regulatory News Service and it included the Key Statement.

4.28.
At the same time as the 8 March Announcement was being prepared, Aviva also

prepared notes and a script for its staff who were to give the presentation to analysts

relating to it. Aviva sought advice from its external professional advisers on the script.

These notes included a section called “Content for CEO Script” which included the

bullet points: “To be clear though, it is our intention to return in excess of 500m of

capital to shareholders this year” and: “We intend to do these returns through a

combination of preference and ordinary shares.” In his oral presentation of the 2017

preliminary results, which largely followed the script prepared beforehand, the CEO

“Turning now to capital. Now, at our investor day in November we outlined

our intention to deploy £2 billion in 2018 and a further £1 billion in 2019.

And today, I want to add some specific guidance about the use of that capital

… Of the £500 million plus earmarked for capital returns, we’re working

through our plans but we are not yet ready to announce the dates or the

exact mechanisms today. To be very clear though, it is our intention to

return at least £500 million of capital to shareholders this year. We intend

to do this through a combination of preference and ordinary shares. Now,

for the prefs, you should note that we have the ability to cancel these prefs

at par, with shareholder approval. These prefs carry very high coupons and

will no longer count for regulatory capital from 2026. In addition, we’re in

a very fortunate position with our cash and capital that we now have the

ability to do something about it. So we intend to. [Our CFO] will take you

through the detail of this in a moment.”

The CFO then said in his oral presentation:

“…as [the CEO] said, one of the things we’re looking at is the possibility of

a liability management exercise concerning one or more tranches of

preferred securities issued by either our General Accident subsidiary or

Aviva plc. The rating agencies don’t count them as capital anymore and

they likely will not count for capital for Solvency II purposes from 2026 so

they no longer serve their originally intended purpose. Essentially they’re

now just the equivalent of very expensive senior debt with coupons that are

not tax deductible. So while we’ve not taken any decisions we note that

these securities are subject to cancellation at par upon a capital reduction

approved by ordinary and preferred shareholders voting as a single class.

Now that we’re in excess cash and capital position, it may make sense for

the company to address these securities now or some time prior to 2026.

So as we work through the alternatives, one of the things we’re considering

is how best to balance the respective interests of ordinary and preferred

4.29.
The CEO’s statement in his oral presentation that Aviva intended to return at least

£500 million to shareholders in 2018 through a combination of preference and

ordinary shares was consistent with the wording in the Key Statement and was

incorrect: Aviva had not formed such an intention in relation to the Preference Shares.

A holder of the Preference Shares and the market would have been entitled to take

into account the CEO’s oral presentation when interpreting the Key Statement,

notwithstanding the statement which followed by the CFO that no decisions in relation

to the Preference Shares had been taken.

4.30.
Following the 8 March Announcement, the market price of all the Preference Shares

fell substantially over the next two days and between 20% and 26% of market value

was lost. At least some holders of the Preference Shares: interpreted the Key

Statement to mean that Aviva intended to cancel the Preference Shares at par in

2018; and/or concluded that such cancellation at par was more likely than it in fact

was; and/or failed to appreciate that it was probable that any exercise of the right to

cancel at par would be accompanied by compensatory measures.

4.31.
On 15 March 2018, Aviva published a statement on its website noting the speculation

caused by the 8 March Announcement. This statement provided a more detailed

explanation of the mechanism through which the Preference Shares might be

cancelled and said Aviva was continuing to consider its options in relation to the

Preference Shares.

4.32.
On 23 March 2018, Aviva published the 23 March Announcement (reflecting a decision

taken the previous day), expressly stating that it had decided to take no action to

cancel its Preference Shares. The CEO stated that he and the Board had a duty to

consider not just the financial implications of their actions but also the impact on

Aviva’s wider reputation, and that he hoped that the decision went some way towards

restoring the trust of customers and investors.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

Breach of LR 1.3.3R and DTR 1A.3.2R

5.2.
LR 1.3.3R sets out that an issuer must take reasonable care to ensure that any

information it notifies to a regulatory information service or makes available through

the Authority is not misleading, false or deceptive and does not omit anything likely

to affect the import of the information.

5.3.
DTR 1A.3.2R sets out that an issuer must take all reasonable care to ensure that any

information it notifies to a regulatory information service is not misleading, false or

deceptive and does not omit anything likely to affect the import of the information.

5.4.
The following circumstances are relevant to the assessment of whether Aviva took

reasonable care to ensure that the Key Statement was not misleading and did not

omit anything likely to affect the import of the information in it.

5.4.1.
Aviva expected that the price of the Preference Shares would fall as a

result of the 8 March Announcement.

5.4.2.
Aviva knew that there were significant retail holdings of the Preference

Shares.

5.4.3.
Aviva expected that some investors would be upset or angered by the 8

March Announcement.

5.4.4.
Aviva knew that if the Key Statement misled investors or omitted

information that was material to its import then market confidence could

be affected.

5.4.5.
Aviva had substantial legal, financial and personnel resources available

to it, and access to external professional advice.

5.5.
In issuing the 8 March Announcement (which was notified to a regulatory information

service), Aviva failed to take reasonable care to ensure that the Key Statement was

not misleading and did not omit anything likely to affect the import of the information

contained in it.

5.5.1.
As set out in paragraph 2.4 above, it was reasonably foreseeable that

holders of the Preference Shares and the market more generally would

be misled by the Key Statement, as it omitted matters that were likely to

affect the import of the information in it.

5.5.2.
Aviva failed correctly to assess its obligations under LR 1.3.3R and DTR

5.5.3.
Although Aviva sought advice from external professional advisers, it failed

to obtain specific advice in relation to compliance with LR 1.3.3R and DTR

5.5.4.
The potential for the Key Statement to mislead the holders of the

Preference Shares and the market by the omission of information that

was likely to affect the import of the information contained in the Key

Statement, should have been obvious to Aviva if it had properly

considered its obligation under the Listing Rules and the Transparency

Rules. In all the circumstances, the Authority considers that Aviva failed

to do so and therefore failed to take reasonable care to ensure that the

Key Statement did not omit anything likely to affect the import of the

information that was disclosed in it and did not mislead the holders of the

Preference Shares and the market.

6.
SANCTION

6.1.
The principal purpose of issuing a public censure is to promote high standards of

regulatory conduct by deterring persons who have committed breaches from

committing further breaches and helping to deter other persons from committing

similar breaches, as well as demonstrating generally the benefits of compliant

behaviour.

6.2.
DEPP 6.4.1G provides that the Authority will consider all the relevant

circumstances of the case when deciding whether to impose a penalty or issue a

public censure. DEPP 6.4.2G provides that the criteria for determining that

question include the factors that the Authority will consider in determining the

amount of penalty, set out in DEPP 6.5AG. DEPP 6.4.2G also sets out some

particular considerations that may be relevant in determining whether it is

appropriate to issue a public censure rather than impose a financial penalty. The

Authority considers that the factors below are particularly relevant in this case.

Deterrence (DEPP 6.4.2G(1))

6.3.
In determining whether to issue a public censure, the Authority has had regard to

the need to publish a statement of Aviva’s misconduct to ensure that firms take

seriously their obligations to publish information to the market that is not

misleading. The Authority considers that a public censure should be imposed to

demonstrate to Aviva and the market the seriousness with which the Authority

regards Aviva’s failings, and that deterrence may be effectively achieved by doing

so.

Seriousness (DEPP 6.4.2G(3))

6.4.
In determining whether to impose a public censure or a financial penalty the

Authority will have regard to the seriousness of the breaches. The Authority, in

particular, considers the following factors set out in DEPP 6.5AG to be relevant in

this case:

6.4.1.
the breaches were not committed deliberately or recklessly;

6.4.2.
Aviva did not make any profits or avoid any losses as a result of the

breaches, either directly or indirectly;

6.4.3.
there was a significant risk of loss, and realised loss, to Aviva and General

Accident’s preference shareholders;

6.4.4.
the breaches caused distress to Aviva and General Accident’s preference

shareholders;

6.4.5.
in committing the breach Aviva took steps to comply with its legal and

regulatory obligations (including by seeking external professional

advice); however, those steps were inadequate.

Co-operation and redress payment scheme (DEPP 6.4.2G (5))

6.5.
In determining whether to issue a public censure the Authority has had regard to

the statements Aviva issued on 15 March 2018 and 23 March 2018. The Authority

has also taken into consideration Aviva’s payment scheme offered to shareholders

who sold the Preference Shares in the period 8 March to 22 March 2018 at a price

lower than the price to which the Preference Shares returned following the 23

March Announcement. The payment scheme was announced on 30 April 2018,

shortly after the 8 March Announcement. It opened for claims on 31 July 2018

and was closed on 31 January 2019.

6.6.
The Authority considers that failing to take reasonable care to ensure that

information provided to the market, by notification to an RIS, is not misleading

and does not omit anything likely to affect the import of the information is a

serious failing. However, in the circumstances of this case, having regard to the

steps Aviva has taken to ensure that those who suffered loss were compensated

for those losses, the Authority decided that issuing a public censure is appropriate

in the interest of deterrence.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by:

(1)
Aviva; and

(2)
the individual who was Aviva’s CEO at the relevant time, a third party

identified in the reasons set out in this Notice, and to whom in the opinion

of the Authority the matter is prejudicial

and how they have been dealt with. In making the decision which gave rise to

the obligation to give this Notice, the Authority has taken into account all of the

representations made by Aviva and that individual, whether or not set out in

Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given under, and in accordance with, section 390 of the Act.

Decision maker

8.2.
The decision which gave rise to the obligation to give this Notice was made by the

Regulatory Decisions Committee.

Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this Notice relates. Under those provisions,

the Authority must publish such information about the matter to which this Notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to the person with respect to whom the action was taken or

prejudicial to the interests of consumers or detrimental to the stability of the UK

financial system.

8.4.
For more information concerning this matter generally, contact Kerri Scott at the

Authority (direct line: 020 7066 4620 /email: kerri.scott@fca.org.uk).

Sadaf Hussain
Head of Department
Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1.1.
The Authority’s statutory objectives include:

(1)
the strategic objective, set out in section 1B(2) of the Act, of “ensuring that

the relevant markets… function well”; and

(2)
the operational objectives set out in section 1B(3) of the Act, which include

the integrity objective, further defined in section 1D of the Act as “protecting

and enhancing the integrity of the UK financial system”.

1.2.
Section 91 of the Act provides:

“(1)
If the [Authority] considers that:

(a)
an issuer of listed securities, or

(b)
an applicant for listing

has contravened any provisions of listing rules, it may impose on him a

penalty of such amount as it considers appropriate

(3)
If the Authority is entitled to impose a penalty on a person under this section

in respect of a particular matter it may, instead of imposing a penalty on

him in respect of that matter, publish a statement censuring him.”

RELEVANT REGULATORY PROVISIONS

Listing Rules

1.3.
LR 1.3.3R states:

“(1)
An issuer must take reasonable care to ensure that any information it notifies to a

RIS or makes available through the [Authority] is not misleading, false or deceptive

and does not omit anything likely to affect the import of the information.”

Disclosure Guidance and Transparency Rules

1.4.
DTR 1A.3.2R states:

“(1)
An issuer must take all reasonable care to ensure that any information it notifies to

a RIS is not misleading, false or deceptive and does not omit anything likely to

affect the import of the information.”

DEPP

1.5.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s statement of policy with respect to imposing penalties and issuing public

censures under the Act.

The Enforcement Guide

1.6.
The Enforcement Guide sets out the Authority’s approach to exercising its main

enforcement powers under the Act.

1.7.
Chapter 7 of the Enforcement Guide sets out the Authority’s approach to

exercising its power to impose financial penalties and other sanctions, including

the power to publish a statement.

ANNEX B

REPRESENTATIONS

Representations of Aviva

1. Aviva’s representations (in italics), and the Authority’s conclusions in respect of
them, are set out below.

The relevant rules (DTR 1A.3.2R and LR 1.3.3R)

2. The rules do not apply to communications with the market which are neither
notified to an RIS nor made available through the Authority. Other communications
by Aviva such as the results presentation to analysts made after the publication of
the 8 March Announcement are not caught by the rules. Nor can they to be taken
into account in assessing an alleged breach of the rules on the grounds that market
participants would be entitled to take them into account in interpreting an RIS
announcement:

a. The rules apply to an RIS announcement itself and cannot apply to any
communication later in time, whether by treating it as part of the
background to the announcement or otherwise.

b. An interpretation of the rules which extends their application in this way
would involve a significant and unjustified departure from the express
language used in the rules. This would be contrary to the principle of
regulatory certainty and could lead to a breach of the rules from facts which
no reasonable issuer properly advised could have anticipated would be
treated as a breach.

c. This is not a lacuna which needs to be remedied by purposive interpretation
of the rules. Communications with the market generally are governed by
other rules. The more stringent standards set out in the relevant rules
reflect the special and authoritative status held by RIS announcements in
the market.

3. The Authority agrees that the rules apply only to communications notified to an RIS
or (in the case of LR 1.3.3R) made available through the Authority but considers
that what was said in the results presentation is relevant to the assessment of
whether Aviva took reasonable care to ensure that the 8 March Announcement was
not misleading and did not omit anything likely to affect the import of the
information it contained. This is because Aviva would have been well aware that
the 8 March Announcement would be interpreted by holders of the Preference
Shares and the market in the light of the results presentation, to be given later the
same morning, which was designed to explain the 8 March Announcement and the
content of which was prepared at the same time as the announcement itself.
Accordingly, when preparing the 8 March Announcement, Aviva should have taken
the intended results presentation into account in considering how holders of the
Preference Shares and the market could reasonably be expected to understand the
8 March Announcement. Nonetheless, even without having regard to the results
presentation, the Authority considers that the 8 March Announcement did omit
information which was likely to affect the import of the information included in the
announcement and was reasonably capable of misleading holders of the Preference
Shares and the market, for the reasons given in this Notice.

The status of Aviva’s decision-making as at 8 March 2018

4. A variety of views was expressed when Project Silver was considered at the 31
January 2018 Board meeting. 9 out of the 12 directors (including the CEO) were
in favour of some action to retire the Preference Shares and the Chairman’s
evidence is that it appeared that a majority of those favoured cancellation at par.
No decision was taken whether to retire the Preference Shares at all, or (if so):
which to retire; when to retire them; or the terms and mechanism for doing so
including the pricing of any tender offer or any compensatory measures to be
offered in the case of a cancellation by return of capital. There was agreement that
the next step was to investigate the options further. Following that meeting, all
options remained open, not just in the formal sense that no decision had been
taken by the Board, but also in the practical sense that they all remained
possibilities for Aviva, in 2018 as well as subsequently. The Board did not meet to
discuss the matter again prior to the 7 March 2018 Board meeting, and at that
meeting did not further debate the options.

5. The most importance piece of evidence as to the state of the Board’s decision-
making at the date of the 8 March Announcement is the text of the 8 March
Announcement itself, because it was approved by the Board. There was specific
consideration of the Key Statement and broad consensus that it ought to be
included.

6. The Authority does not dispute the summary of the status of Aviva’s decision-
making set out in paragraph 4 above, which is consistent with paragraphs 4.12 to
4.25 of this Notice, although it considers that action to retire the Aviva Preference
Shares at par in 2018 was unlikely, for the reasons set out in the minutes referred
to at paragraph 4.14 of this Notice. Notwithstanding the Board’s approval of the 8
March Announcement, the Authority considers that the 8 March Announcement
gave the Key Statement Impression (as explained further below).

The objective meaning of the 8 March Announcement

7. The 8 March Announcement’s objective meaning was consistent with the factual
position as set out at paragraph 4 above.

8. The objective meaning of the express words of the 8 March Announcement was
that:

a. Aviva had the ability to cancel the Preference Shares at par value subject to
shareholder vote and court approval;

b. there were reasons of commercial and financial logic in favour of retiring the
Preference Shares, namely that they carried high coupons which were not
tax deductible and that they would not count as regulatory capital from
2026; and

c. Aviva was evaluating alternatives in relation to the Preference Shares and
in doing so was considering how to balance the interests of ordinary and
preferred shareholders.

9. The 8 March Announcement carried the clear implication (on the basis of the
express meaning identified at sub-paragraphs 8(a), (b) and (c) above) that Aviva
had not reached any decision (as to cancellation at par or on any other terms), and
was considering exercising its ability to cancel the Preference Shares as one of the

options available to it should it decide to retire the shares. It did not say anything,
expressly or by implication, as to the timing of any possible action to retire the
Preference Shares, or as to the pricing of any corporate action or set of actions to
retire them. Although it referred to the ability to cancel at par, it is clear from the
reference to continued consideration of “how to balance the interests of ordinary
and preferred shareholders” that Aviva had not resolved that the retirement of the
Preference Shares (were it to occur) would be at par or any other specific price. As
market participants would have been well aware (although Aviva accepts this may
be more clearly applicable to institutional investors than to retail investors), had
Aviva formed an intention to cancel the Preference Shares it would have been
obliged to announce this to prevent the existence or continuance of a false market
in the Preference Shares.

10. The Authority accepts that the 8 March Announcement contained express words
with the meaning set out in paragraph 8 above. However, it considers that, by (in
the context of outlining its plans for 2018): (a) expressly mentioning the ability to
redeem the Preference Shares at par, and none of the other options available to
Aviva; and (b) referring to the reasons in favour of cancellation at par and not to
any countervailing reasons, it gave undue weight to that option, giving the
impression that it was both probable and imminent.

11. The Authority also considers that the sentence “As we evaluate the alternatives,
one of the things we are considering is how to balance the interests of ordinary and
preferred shareholders” lacked clarity and accordingly fell short of being an
adequate indication that no decision had been taken, as was in fact the case. For
example, it was not clear that the alternatives referred to were alternatives to
cancellation at par (such as cancellation with compensatory measures), rather than
alternative ways of achieving that outcome: such as retiring only some of the
Preference Shares, or retiring them at different times. Nor would it have been
clear, particularly to retail investors, that balancing the interests of ordinary and
preference shareholders might mean taking no action to retire the Preference
Shares at all. The Authority considers that (as substantially acknowledged by
Aviva) retail investors could not reasonably be expected to be aware of the
obligation under the Market Abuse Regulation to announce any formed intention to
cancel the Preference Shares, and notes that retail investors made up a substantial
proportion of the holders of the Preference Shares.

The 8 March Announcement did not give the Key Statement Impression

12. For the reasons set out above, the 8 March Announcement did not give the Key
Statement Impression. The Authority’s case that it did appears to be based on the
following:

a. comments made by the CEO of Aviva at the results presentation some two
hours after publication of the 8 March Announcement;

b. the fact that the market price of the Preference Shares fell after the 8 March
Announcement; and

c. an assertion that at least some holders of the Preference Shares interpreted
the 8 March Announcement as giving some part of the Key Statement
Impression.

13. For the reasons set out above, the results presentation cannot be used as an
interpretive aid to the 8 March Announcement and remarks made in the
presentation cannot constitute (or evidence) breaches of the rules. But in any
event, the comments of the CEO, properly considered in the context of the results
presentation, do not give or contribute to the Key Statement Impression. In
connection with the planned return of capital, the CEO said ‘we intend to do this
through a combination of preference and ordinary shares’. In the context of the
express statement that the mechanism of returning capital was not yet decided,
the proper meaning to be attributed to this remark was simply that Aviva’s
Preference Shares and its ordinary shares were the two classes of its capital which
were under consideration for the making of capital returns. This was consistent with
the 8 March Announcement. The reference to the ability to cancel the Preference
Shares at par was also consistent with the 8 March Announcement. It did not imply
that a cancellation would not be accompanied by compensatory measures (or
indeed that it would be: this had not been decided).

14. Furthermore, the CEO expressly referred his audience to the comments which the
CFO would shortly be making in the presentation, which would explain the detail of
the position with respect to the Preference Shares. While providing that detail, the
CFO then expressly said that no decision had been taken in respect of the
Preference Shares and that it “may make sense” for Aviva to take action in relation
to the Preference Shares “now or some time prior to 2026”. He went on to say “as
we work through the alternatives, one of the things we are considering is how to
balance the respective interests of ordinary and preferred shareholders”. These
comments were inconsistent with any alleged impression that Aviva had formed an
intention to cancel the Preference Shares, that it had formed an intention to do so
in 2018 and/or that it had formed an intention to do so at par value without
compensatory measures. It is illegitimate to take account of only the comments of
the CEO and not those of the CFO, especially where the CEO referred the audience
to him for the detail.

15. It cannot be inferred from the decline in the market price of the Preference Shares
that the 8 March Announcement gave the Key Statement Impression. It is clear
from the fact that the price of preference shares of several other issuers also
declined following the 8 March Announcement that the market had not generally
appreciated that irredeemable preference shares of that kind were in fact subject
to cancellation at par. The price decline is evidence not that the 8 March
Announcement gave the Key Statement Impression but that it changed the
market’s understanding of the terms and legal position of the Preference Shares.
Furthermore, the 8 March Announcement may have given the correct impression
that cancellation at par was one of the options under consideration by Aviva, and
this could have been a further reason for a decline in Aviva shares. The partial
recovery in price after the 23 March Announcement reflected the fact that the
option of cancellation at par had by then been ruled out by the Board (though they
remained vulnerable to cancellation as a matter of law, which had not previously
been widely understood in the market, and is no doubt why the Preference Shares
did not recover to the pre-8 March 2018 price).

16. The Authority appears to rely on two pieces of evidence in support of the assertion
that at least some of the holders of the Preference Shares interpreted the Key
Statement to mean that Aviva intended to cancel the Preference Shares at par in
2018; and/or concluded that such cancellation at par was more likely than in fact

it was; and/or failed to appreciate that any exercise of the right to cancel at par
was likely to be accompanied by compensatory measures:

a. A member of Aviva’s staff referred in interview to communications with
investors in the weeks following the 8 March Announcement. But insofar as
that individual was describing an impression formed by investors as to
Aviva’s intentions (which is far from obvious from the interview transcript)
it sheds no light on how those investors had understood the 8 March
Announcement as opposed to the views they had formed based on press
and analyst commentary, discussions with other market participants or their
own analysis. Indeed, the evidence of the individual was that they thought
the investors had been influenced by commentary after the 8 March
Announcement.

b. On 20 March 2018, the Chairman of Aviva met a number of institutional
investors who indicated they would not support any action by Aviva to cancel
the Preference Shares. But the file note of that meeting discloses nothing
as to how those investors had interpreted the 8 March Announcement.

17. The Authority’s view that the 8 March Announcement gave the Key Statement
Impression is based on the meaning that recipients might reasonably be expected
to take from it, by reason of the omission of significant information, as set out
above. But the Authority considers that the three matters set out in sub-paragraphs
12(a) to (c) above are consistent with this conclusion.

18. As explained in paragraph 3 above, the Authority considers that the results
presentation can be taken into account in assessing whether Aviva took reasonable
care to ensure that the 8 March Announcement was not misleading and did not
omit anything likely to affect the import of the information it contained. The
incorrect statement by the CEO that Aviva intended to return at least £500 million
to shareholders in 2018 through a combination of preference and ordinary shares
was immediately followed by the statement that Aviva had the ability to cancel
preference shares at par and then by the words “So we intend to”. In the
Authority’s view, this indicated that Aviva intended to take such action in 2018,
without compensatory measures, thereby reinforcing the Key Statement
Impression. The prior statement that Aviva was not ready to announce the precise
mechanisms was insufficient to negate that impression: it was reasonably
foreseeable that an investor would have understood the “precise mechanisms” to
refer to the detail of the planned action rather than whether it was to take place at
all. The reference to the CFO’s part of the presentation for the detail was also
insufficient to negate that impression, since an investor was entitled to assume that
what the CEO was saying was correct, even if the CFO was to provide more detail
about the action which the CEO had indicated Aviva would be taking in 2018.

19. Nor was the misleading statement adequately corrected by the CFO in his oral
statement. The CFO did not refer to what the CEO had said earlier or suggest that
he was seeking to correct or qualify it. As noted above, an investor was entitled to
assume the CEO was speaking accurately, and accordingly the CFO’s statement
that no decisions had been taken could reasonably have been understood as
meaning that the precise combination of preference and ordinary shares had not
yet been determined. Further, the CFO’s statement that it “may make sense for
the company to address the preference shares now or some time prior to 2026”
could reasonably have been understood as meaning that the retirement of £500

million of a “combination of preference shares and ordinary shares” mentioned by
the CEO could leave some of the Preference Shares outstanding.

20. The Authority recognises that, prior to the 8 March Announcement, the market may
not generally have appreciated that irredeemable preference shares were in fact
subject to cancellation. It also accepts that along with the prices of the Preference
Shares, the prices of preference shares of other issuers also fell after the Key
Statement was made on 8 March 2018, and subsequently rose after the 23 March
Announcement, though not to the levels at which they had been prior to the 8
March Announcement. There therefore appears to be a correlation with the two
announcements on those dates (although other factors could have contributed to
the movements in the price of the other shares). However, it is the Authority’s
view that the market price of preference shares would be affected not only by the
market’s awareness of the existence of the right to cancel them at par but also by
its assessment of the likelihood of the issuer exercising that right, the likely
timeframe of any such action and the terms on which it might happen. The fact
that other preference shares also rose in price after the 23 March Announcement,
though not to their pre-8 March Announcement levels, does not appear to the
Authority to be consistent with its view. The Authority notes that the prices of the
Preference Shares fell more sharply on 8 March 2018 than those of other preference
shares, which is consistent with particular concern on the part of investors over the
position of the Preference Shares issued by Aviva and General Accident.

21. As to the contacts with investors mentioned at sub-paragraphs 16(a) and(b) above:

a. The relevant interview transcript of the Aviva staff member does not provide
any basis for attributing to anything other than the 8 March Announcement
the impression on the part of investors, to which it refers, that Aviva
intended to retire the Preference Shares at par. Further, insofar as that
individual speculated that the investors concerned had been influenced by
analysts’ commentary after the event, that tends to suggest the individual
considered that analysts had also received the Key Statement Impression.

b. So far as the file note of the meeting between Aviva’s Chairman and a
number of institutional investors is concerned, contrary to Aviva’s
contention, the indication by such investors that they would not support
action to cancel the Preference Shares, as set out in the note, and the force
with which it was expressed, suggests they had also obtained the Key
Statement Impression. Investors present at the meeting noted that the
Chairman’s tone in the meeting was very different from that of the 8 March
Announcement.

The 8 March Announcement was not misleading; nor did it omit anything affecting

its import

22. For the reasons set out above, the objective meaning of the 8 March Announcement
was consistent with the state of Aviva’s decision-making in relation to the
Preference Shares. The Board approved it, having had its attention specifically
drawn to the language concerning the Preference Shares, including what was to be
said about the state of the Board’s decision-making. It is to be inferred from this
that the Board was comfortable with the overall impression given by the 8 March
Announcement as to the state of its consideration of the options.

23. With regard to the alleged omissions:

a. It is true that the 8 March Announcement did not expressly state that Aviva
had not formed an intention to retire some or all of the Preference Shares,
either in 2018 or at all. But it was not necessary to do so since it did not
imply that Aviva had formed such an intention. Further, it was clear from
the express words used in the 8 March Announcement (“as we evaluate the
alternatives”; “balance the interests”) that Aviva had not formed an
intention one way or the other as to whether to retire some or all of the
Preference Shares. There was therefore no omission, or if there was, it was
not misleading and did not affect the import of the 8 March Announcement.

b. Further, the 8 March Announcement explained that the Preference Shares
would cease to count as regulatory capital from 2026. Although there is no
reason why the Preference Shares could not have been cancelled as part of
Aviva’s 2018 capital returns, the 8 March Announcement made it clear that
there was a window of several years before the regulatory capital status of
the Preference Shares would be an issue. In the circumstances, the 8 March
Announcement was not reasonably capable of giving the impression that
Aviva had already formed an intention to retire the Preference Shares in
2018.

c. It is correct that the 8 March Announcement identified specific reasons in
favour of retirement of the Preference Shares. But it is incorrect to say it
did not also identify any countervailing considerations. It was clear from
the 8 March Announcement that cancellation was dependent on shareholder
approvals (which clearly might not be forthcoming) and expressly stated, in
clear language, that the Board’s decision would involve balancing the
interests of preferred and ordinary shareholders (which, because they
required balancing, were opposed or different). It would have been
transparently clear to readers that cancellation at par would, in the absence
of compensatory measures, cause loss to holders of the Preference Shares.
These relevant and material countervailing considerations were identified
(expressly or by implication) as requiring still to be balanced, and they were
the very considerations which ultimately caused Aviva to decide not to
proceed with any retirement of the Preference Shares.

24. The Authority accepts that the Board of Aviva gave consideration to, and approved,
the 8 March Announcement but rejects the implication, if such is intended, that this
demonstrates that the Key Statement was not misleading.

25. For the reasons set out at paragraphs 10 and 11 above, the Authority does not
agree with Aviva’s view as to the objective meaning of the 8 March Announcement.
Accordingly, it considers that there was an omission with respect to stating clearly
that no decision had been made by Aviva to cancel the Preference Shares at par,
and that there were other options open to Aviva, including the use of compensatory
measures, and that such omission was misleading. In the absence of such
statement, the Key Statement was reasonably capable of giving the holders of the
Preference Shares and the market the Key Statement Impression. The reference
to 2026 was insufficient to negate the impression that Aviva had formed an
intention to retire the Preference Shares in 2018, especially in light of its context,
namely Aviva’s plans for 2018, and the other commercial reason given in favour of
doing so (“the preference shares carry high coupons that are not tax-deductible”),

which was already applicable at that point in time, not just in the future. The
reference to shareholder approvals, coming as it did as part of a statement about
Aviva’s intentions for 2018 and its ability to cancel the shares, did not, in the
Authority’s view, constitute, or clearly indicate the existence of, countervailing
reasons. The reference to the balancing of “the interests of ordinary and preferred
shareholders” was inadequate as set out at paragraph 11 above, and in any event
did not refer to any such reasons.

Aviva took all reasonable care in making the 8 March Announcement

26. Following the January Board meeting and up until the 8 March Announcement,
Aviva gave extensive and careful consideration to whether it ought to include any
statement concerning the Preference Shares in the 8 March Announcement and, if
so, what that statement ought to be. The proposed language was reviewed by
numerous senior staff in various teams. Aviva also consulted with and received
advice both from internal and external professional advisers, and took that advice
into account. A draft of the 8 March Announcement was shared with the Authority
and reviewed by all the appropriate Aviva internal committees before it was
ultimately approved by the Board. In deciding to include a statement to ensure
the market was aware that the Preference Shares were capable of being cancelled
at par, Aviva was acting responsibly and in accordance with regulatory best
practice.

27. Aviva and its advisers took care to find a form of words that both corrected the
apparent misunderstanding in the market about the terms of the Preference Shares
and accurately reflected the state of the Board’s decision-making and would not
mislead the market. In particular:

a. The process by which Aviva’s external advisers proposed the wording
mentioned at paragraph 4.21 of this Notice and this was replaced by the
statement set out at paragraph 4.23, which more specifically explained the
competing considerations involved in Aviva’s continued evaluation of the
options, shows that Aviva took care to ensure that it explained not only that
the options remained under consideration but also the tension between the
interests of different classes of shareholder which were to be balanced in
any decision to retire the Preference Shares.

b. Aviva’s staff responsible for drafting and reviewing the 8 March
Announcement and the members of their external advisory teams were all
aware of the substance of the requirement imposed by the relevant rules,
namely that the 8 March Announcement must not be false, misleading or
deceptive (including the requirement that it must not be misleading by
omission). This is a matter of common sense and common practice for any
professional involved in the preparation of such announcements to be made
by a public company to the market.

c. Members of Aviva’s staff explicitly asked its external legal advisers to
consider its “general disclosure obligations” in addition to the Market Abuse
Regulation, and to consider whether the draft 8 March Announcement raised
any “red flags”. They would have reasonably expected the advice provided
to address the relevant rules, where applicable. It was not necessary to
refer to the rules by name and number, and nothing can be inferred from

30

the fact that internal communications or communications with advisers did
not do so.

d. Lawyers instructed to advise generally on the draft 8 March Announcement
considered the relevant rules, and provided advice in that regard, where
applicable. They were properly briefed on the current state of the Board’s
position and had this in mind when reviewing the drafts of the 8 March
Announcement.

e. Members of the relevant internal committees and the Board were aware of
Aviva’s obligations under the Listing Rules, among the other rules and laws
affecting the publication of the 8 March Announcement, and would have had
the relevant rules in mind. Aviva’s Chairman at the time has confirmed he
would have had them high on his mental checklist when reviewing the 8
March Announcement.

28. The Authority appears to say that the alleged misleading impression given by the
8 March Announcement was reasonably foreseeable, such that Aviva’s failure to
notice and correct it, without more, evidences a failure to take reasonable care.
Such an inference is inappropriate in circumstances where there is a considerable
amount of primary evidence as to the steps taken by Aviva to ensure the 8 March
Announcement was not misleading and did not omit anything material to its import.

29. As set out at paragraph 11 above, the Authority does not accept that the wording
set out in paragraph 4.23 of this Notice adequately explained the competing
considerations in Aviva’s evaluation of the options open to it in relation to the
possible retirement of the Preference Shares, or the tension between the interests
of different classes of shareholder.

30. The Authority does not rely, without more, on the fact that the misleading
impression given by the 8 March Announcement was reasonably foreseeable, and
Aviva’s failure to identify and correct it, as evidence of a failure to take reasonable
care. Rather, the Authority has considered the effectiveness of the steps taken by
Aviva with regard to the drafting and review of the 8 March Announcement, and
has concluded that they were inadequate to satisfy the duty to take reasonable
care. The Authority acknowledges that the 8 March Announcement was the subject
of a review process involving numerous staff of various disciplines within Aviva,
and external professional advisers, but providing for review by so many participants
of itself gave no guarantee that the 8 March Announcement would not omit
information likely to affect the import of information contained in it and mislead,
and did not equate to taking reasonable care that it would not do so.

31. In the Authority’s view, Aviva’s review of the drafts of the 8 March Announcement
focused on the accuracy of the literal meaning of the words used in the Key
Statement, and failed adequately to consider the potential for impact on holders of
the Preference Shares and the market of those words by reason of the omission of
matters affecting their import.

32. The Authority notes that the Listing Rules and Transparency Rules are not
specifically mentioned (even in passing) in any of the contemporaneous documents
relating to the review by Aviva and its external advisers of the 8 March
Announcement. Nevertheless, it accepts that external professional advisers and
staff within Aviva were aware of the Listing Rules and Transparency Rules and at

least some of them will have had them (or their substance) in mind when
considering the drafts of the 8 March Announcement. However, it considers that,
despite its expectation that some investors would be upset or angered by the Key
Statement, Aviva failed adequately to focus on the likely impact of the Key
Statement and to consider the drafting of the Key Statement accordingly, including
how what it said might reasonably and foreseeably be interpreted by the market:
particularly retail investors. It then failed to brief its external advisers expressly
on that likely impact and obtain appropriate advice from them.

The implications for the market of censuring Aviva

33. Aviva behaved responsibly (going beyond its obligations under the Market Abuse
Regulation) in bringing the true position of the Preference Shares to the attention
of the market. To censure it for doing so would give the market the message that
Aviva should not voluntarily have made an announcement. This would be
potentially damaging given the Authority has recently recognised in its revisions to
the Listing Rules the importance of the market being kept aware of the material
terms of issuers’ securities.

34. The Authority does not agree that the message sent to the market by this Notice
should be the discouragement of voluntary announcements where appropriate;
rather, it should be a reminder of the importance of ensuring that the information
provided through an RIS is not misleading and does not omit anything likely to
affect the import of the information in an announcement. It should further serve as
a reminder of the need to take adequate account of the nature of the intended
audience when considering the information that ought properly
to be
communicated.

Third party representations of Aviva’s then CEO

35. The CEO’s representations (in italics), and the Authority’s conclusions in respect of
them, are set out below.

36. The CEO is strongly supportive of the representations made by Aviva, and adopts
them in their entirety as if they were his own.

37. The Authority repeats the points made above in relation to the representations by
Aviva.

38. As at 8 March and the results presentation, he was fully aware, as no doubt the
rest of the Board was, that no intention to retire some or all of the Preference
Shares in 2018 had been formed and understood that all options were still being
evaluated and no decisions had been taken. It therefore falls to be considered why
he would incorrectly suggest during the results presentation, as the Authority
alleges, that Aviva had a fully-formed intention to retire some or all of the
Preference Shares during 2018. He did not “mis-speak”. In fact, on a true
construction of the words used, they did not have the meaning alleged by the
Authority.

39. The CEO closely followed a script on autocue at the presentation. The final script
was the subject of much careful review, consideration and comments by individuals
internally and by external advisers, and he discussed it with those present at a
Board Audit Committee meeting on 5 March 2018. All Board members except one

were present, rather than only those who were formal members of the Committee.
It is inconceivable that all the reviewers would not have taken issue with the
proposed script if it had the meaning alleged.

40. When considering the meaning of the CEO’s comments, any reasonable market
participant would have considered them in the context of the results presentation
as a whole. The CEO clearly indicated that the CFO would be providing the details
of Aviva’s capital plans. In essence, the CEO was just providing an introduction to
this topic before handing over to the CFO, who was the natural person to provide
such detail. A number of statements made by the CFO (“So while we’ve not taken
any decisions…”; “…it may make sense for the company to address these securities
now or some time prior to 2026”; “So as we work through the alternatives, one of
the things we’re considering is how best to balance the respective interests of
ordinary and preferred shareholders…”) would leave any reasonable listener clear
that Aviva was still considering its options in relation to the Preference Shares and
that no decision had been taken in respect of them.

41. In any event, taking the CEO’s comments in isolation, they do not have the meaning
alleged. He first confirmed during the results presentation that Aviva’s intention
was to use at least £500 million for capital returns, then noted that “we’re working
through our plans, but we are not yet ready to announce the dates or the exact
mechanisms today”. In this context, the proper meaning of the subsequent
comment that “we intend to do this through a combination of preference and
ordinary shares” was that these were the two classes of capital through which Aviva
was considering making the £500 million of capital returns. He was not saying that
Aviva had reached a decision to retire some or all of the Preference Shares in 2018.

42. The review of the script by numerous personnel was no guarantee that it would not
mislead.

43. The Authority considers the plain meaning of the statement that “… it is our
intention to return at least £500 million of capital to shareholders this year. We
intend to do this through a combination of preference and ordinary shares”, and
that Aviva had the ability to cancel preference shares at par, followed by the words
“So we intend to”, was that cancellation at par was planned for 2018. Whether or
not the CEO “mis-spoke”, his statement was wrong. For the reasons set out at
paragraphs 18 and 19 above, the Authority does not consider that anything said
subsequently at the presentation either by the CEO himself or by the CFO, was
adequate to correct that statement.