Mini-tender Offers: Protection for Shareholders

My Lords, the Government are committed to promoting the culture of retail investment. We are concerned by reports of shareholders being targeted by unsolicited offers to sell their shares below market value. Shareholders should exercise caution and carefully consider any such offer. The law is also clear: communications relating to the buying and selling of shares must be fair, clear and not misleading. We will continue to work with the FCA to monitor risk and ensure that investors remain appropriately protected.

My Lords, I thank the Minister for his Answer, but there is no way that the offer can be considered fair. It cannot be justified as being in the shareholders’ interests. It does not mention that Aviva has its own small shareholder dealing service, for example. The gaps in shareholder protection that are allowing this cynical exploitation of vulnerable elderly people, who often received shares in the 1980s and 1990s demutualisations and denationalisations, seem to be a real loophole that we need to close. I would be grateful if the Minister would meet me while the Financial Services and Markets Bill is going through the House to see whether we can offer better protection. The courts have not protected, the data protection laws have not protected, and the FCA is merely looking at whether the law is broken. If not, we need to change that protection.

My Lords, I will of course be happy to meet the noble Baroness. As I hope we are showing through the process on that Bill, we are trying to rightsize our regulation to ensure that it is appropriate. I will not comment too much on this particular case. The CEO of the FCA is committed to doing a thorough assessment. We have to be careful about what is regarded as a fair market price for products. The market assessment and the ability to make an offer, and making sure that those financial promotions are appropriate, should be absolutely clear and within the remit of the FCA. An under market price could sometimes be appropriate if there is no liquidity in that market, but I agree with the noble Baroness: we need to look at this specific instance to make sure that there is no wrongdoing. We believe that the FCA has the right process to be able to do that.

My Lords, mini-tenders, even by firms otherwise authorised by the FCA, fall below the FCA’s regulatory threshold. In the future, can the Financial Ombudsman require remedy for an investor caught in a mini-tender bait and switch, or do the clauses in the new financial services Bill requiring the FOS to conform to FCA rules in effect permit the mis-selling?

The noble Baroness is correct, of course. Mini-tenders are not a distinct regulatory category. However, we believe that the activities associated with them currently fall within in the existing regulatory framework, including financial promotion rules and market abuse legislation. Where those communications are misleading, the regulator absolutely has to act. Again, we remain open-minded. It is only right that the FCA does this assessment, then we will take it in to see whether regulation is appropriate.

My Lords, given that these mini-tender offers succeed precisely because some shareholders may not recognise that the price they are being offered is well below market value, and because the offer may well be put to them using high-pressure sales techniques, can my noble friend the Minister give further consideration to assessing the levels of financial literacy among such shareholders, with a view to ensuring that those most at risk of exploitation are most clearly warned about these predatory practices?

My noble friend raises an important point about financial education and financial literacy more generally. Again, I am happy to write to him. There are a number of initiatives across government. We believe that this is an important issue. Shareholders benefit from strong protections under the law and the regulations that already exist. They have rights to information, voting and participation in company decision-making. However, the Digitisation Taskforce recommendations that have just come out appropriately highlight where information asymmetry exists and where we need to get better at protecting some of our less sophisticated investors. It has some specific recommendations around less sophisticated investors. Again, we remain open as a Government. The FCA, the regulator, takes this seriously. We need to use this example as a way to tighten up and make sure that those protections and that education are both appropriate.

Can the Minister tell us what the Treasury is doing to collect the stamp duty that should be chargeable on transactions where there is documentation executed in the United Kingdom, and whether looking at that might represent some method of providing a toolkit to defeat these bad practices?

The Digitisation Taskforce and the access to data have many benefits, not only on promotions but for the issuers of shares to understand where exactly the shareholders are on their cap tables. We hope that that increased awareness of where shareholders and those transactions are will be covered by the current taskforce’s recommendations.

My Lords, my noble friend has identified one category of vulnerable small shareholders. There is an increasing problem of scams, to which smaller shareholders are most at risk. What cyber security is being extended to that category of risk?

I am sorry, what was the question?

Scams: fraudulent activity where people masquerade as a company wanting to buy back the shares—impersonation. Online shareholding accounts are particularly vulnerable to this type of activity.

Part of the FCA’s consumer duty is to ensure that consumers are well informed and protected. The Home Office has issued another policy on protection from particular scams. I am happy to write to the noble Baroness with the specific duties. The FCA has a consumer duty overall and that would fall within that somewhat.

My Lords, I agree with the Minister on the importance of financial literacy, as he knows, but we must ensure that the UK remains a global hub for private investment and capital. Can he confirm that the new Prime Minister will create a climate that helps and keeps businesses in Britain, encourages people to invest and list on the UK stock market, and reverses the damaging brain drain of entrepreneurs and skilled professionals moving overseas?

I have become well aware of the noble Baroness’s interest in this issue. I am certainly not going to speak for a Prime Minister before he is appointed next week, but this really matters to this Government. My belief is that there will be a continuation of the strategy to ensure that we protect entrepreneurs’ interests, make the economy grow and make the UK increasingly attractive, particularly relative to our global competitors for investment. That is the job I do day to day, and I hope to continue to be doing it next Monday.

I have one further question. There are at least two issues at stake. First, the data protection legislation forced Aviva to send all the names and addresses of its shareholders on its register, even though this company wished to write to only a very small subsection of them. That is surely an issue for data protection legislation. Secondly, it is very difficult to understand how the courts could justify a 20% discount to the share price of a major firm, where there is no problem with trading and it has a small shareholder scheme, as being bona fide business interests.

The noble Baroness raises important points. There are two distinct answers to the question. On access to data, the courts have declared that a regulated entity, which any financial promotion has to go through, has to approve that offer and say whether it is for proper business or proper promotion. What we are talking about is an assessment of whether the offer is appropriate, which would be an assessment made by the FCA itself. Companies can apply to the courts to refuse access where they believe that the use of that data is not for a proper purpose. That is what happened in this case. Whether access should be granted is ultimately a matter for the courts. Shareholder registers and the ability to access them are also important for the issuers of those shares. Whether it is for a proper use has to be approved by a regulated entity. As to whether it is below market price, we have to be careful about what a fair assessment of a market price is, depending on the liquidity of that asset. We need to assess this case to see whether it is an outlier or something specific to our market details, but I believe it is correct for the courts to decide whether it is for a proper commercial purpose.

To broaden the issue slightly to investors getting advice from AI apps, such as Gemini, ChatGPT and Claude, do these apps owe the client consumer duty?

I hope my noble friend saw the Chancellor’s Mansion House speech last night—I imagine everyone was glued to it at 9 pm, as I was. Very much part of what this Government and the FCA are trying to do is to ensure that we have the rightsized regulation for a progressive and world-leading market, which the UK is. It is really important that we do not constrain our financial system so significantly that we miss out on the opportunity that technology will provide for us. The Chancellor and the Governor of the Bank of England talked last night about the importance of making sure that we have the right regulation for AI while not rushing into overregulation so that we miss out on the opportunity that technology will create for this country. Regulation has to be rightsized and appropriate but, in an emerging field such as AI, we have to be careful not to strangle that opportunity at the same time.