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Categorized | Insurance

FCA looks into Aviva-Friends Life tie-up

Posted on August 30, 2015

A pedestrian passes a sign outside ''St Helen's'', the headquarters of Aviva Plc in London, U.K., on Tuesday, May 8, 2012. Aviva Plc, the U.K.'s second-biggest insurer, said Andrew Moss quit as chief executive officer after presiding over an almost 60 percent fall in the share price over the last five years and a row over pay.©Bloomberg

The UK finance regulator is looking into leaks and abnormal share price rises before Aviva’s £5.6bn merger with Friends Life was announced in December and has asked advisers on the deal to hand over records.

The Financial Conduct Authority is asking investment bankers on the deal to disclose whether they had any contact with anyone to discuss the merger ahead of its announcement, said people familiar with the case.

    Friends Life’s shares rose about 17 per cent in the month before the deal was leaked to the press in November last year, having fallen 14 per cent since the start of 2014. Its deal with Aviva was the largest takeover announced last year of a UK-listed company, and at the time, the biggest acquisition of an insurance company in the UK in 14 years.

    While insiders said that the FCA’s actions were common in large public takeovers, the development indicates that the regulator is still focusing on market abuse, despite devoting years to major investigations of foreign exchange markets and interest rate rigging.

    “It’s very doubtful that there wasn’t insider dealing in the period during the Libor and forex investigations,” noted Arun Srivastava, a regulatory lawyer at Baker & McKenzie in London.

    While not all price spikes before deal announcements are the result of market abuse, they do raise red flags for the watchdog. Typically, the FCA will track abnormal price movements before deals and review any spikes before information becomes public. It will also review who was on insider lists and the brokers who handled any suspicious trades, to see who their clients were. This process can take months.

    Five years ago, the FCA’s predecessor, the Financial Services Authority, announced a clampdown on conversations between bankers and reporters. It said that contacts should be screened, and press inquiries sent to media relations personnel to prevent insider information from leaking out. That move coincided with a crackdown on market abuse by the regulator, which found abnormal price movements before more than 30 per cent of all deal announcements in 2009.

    Suspicious trading before deals have been announced are now at a historic low in the UK, with abnormal price movements detected before 13.9 per cent of announced transactions in 2014, according to the FCA. That compares with 15.1 per cent of transactions in 2013.

    However, the FCA is also now pursuing fewer insider trading cases partly because the regulator’s enforcement team has been focused on the long-running investigations into the manipulation of Libor, forex and other benchmark rates.

    Friends Life was advised by Barclays, Goldman Sachs and Linklaters, while Aviva used JPMorgan, Morgan Stanley and Allen & Overy. All declined to comment.

    With reporting by Caroline Binham, Arash Massoudi and Jim Brunsden