Regulators Must Protect Vulnerable Shareholders from Mini-Tender Schemes, Says Ruth Sunderland

UK investors have become depressingly familiar with opportunistic buyers seeking to snap up assets at knockdown prices, but this latest episode marks a new low.

Aviva, the insurance giant, has alerted its army of small shareholders to what it describes as a brazen effort to coax them into selling their stock for far below its market value.

The approach has come from a firm named Litani LLC, which has sent paperwork to thousands of retail investors. The documents make clear that the company is proposing to buy their shares at a price well under what they are currently worth.

The apparent calculation is that some recipients may be reassured by the formal look of the correspondence and fail to read the small print closely, or may not fully grasp what is being offered.

The sheer boldness of the move is startling. More troubling still is the fact that, so far, no authority appears to have been able to block what looks like an outrageous attempt to exploit shareholders.

Aviva had resisted providing its shareholder register to Litani, but a court decision late last year compelled the company to release the information.

The Financial Conduct Authority does not oversee so-called mini-tenders of this kind. Even so, legal experts say they are likely to fall under the category of financial promotions, which must be signed off by an authorised firm.

In this case it is an outfit called Gateway 21, which says on its website it is authorised by the FCA to approve financial promotions.

It is very unfortunate indeed that Aviva has been thwarted in its efforts to protect its 500,000 private shareholders from daylight robbery.

Aviva has large numbers of individual shareholders on its register because it was formed from a group of demutualised insurance companies. 

Others are in a similar position, including privatised utilities like Centrica and telecoms giant BT. Shareholders in these companies may be at risk of copycat scams.

Because their stock market floats happened decades ago, many of the individual investors are now elderly and vulnerable.

These scams must be stopped right now.

Token resistance

Tokenisation of wholesale financial markets is a mouthful, but it is important stuff. 

Former regulator Chris Woolard, whose job it is to champion tokenisation, says it could create £33billion of economic value and £14billion of extra annual tax revenues by 2035.

Ambitions include issuing a tokenised gilt, or British government IOU, that could be used as collateral, which would act as a signal of official confidence.

Tokenisation is essentially a big back-office upgrade that should speed up processes, dispense with lots of admin and reduce costs.

What is it? Simply put, a unique digital token is created to represent a gilt, share or other asset and stored in blockchain-based digital wallets.

The tokens are smart, with code embedded so they can be traded and settled instantly. They do come with new risks, including vulnerability to hackers, money-launderers and various criminals.

The fact they can be traded instantly could spark super-rapid sell-offs and exacerbate market crashes.

There are questions about regulation, investor protection and compensation.

Woolard is talking about a ‘digital Big Bang’ similar to the original version in 1986 that transformed the City. 

That would be great. I loved those heady days of power suits, champagne and optimism, but there is plenty for the regulators to ponder. 

Friction and delay are not automatically all bad: they can act as circuit-breakers of sorts and removing them may have unintended consequences.

Annoyance economy

I am thinking of compiling a personal FTSE index, measuring Futile Time Spent Entreating companies to honour customers with even basic levels of service.

My index hit a high last week, pushed upwards by delivery firm DPD, Barclays Bank and tech company HP, which does not actually stand for Horrible Printers but Hewlett-Packard.

Trying to sort out the various problems probably took a day in total – a day when, in effect, I was working for these companies free of charge, solving issues that need not have arisen.

At Barclays, the human staff were exemplary but were thwarted by tech. Setting up a new printer with HP’s app went swimmingly, until it didn’t. No help was available by phone because that helpline isn’t open at weekends.

As for DPD, I was passed around their online chat like a parcel. I knew complaining would be pointless before putting myself through the ordeal, but companies will get away with even more if no-one objects. It is Dial F for Frustration.