The Financial Conduct Authority (FCA) is reviewing certain fixed income shares, particularly those shares that are described as being perpetual, irredeemable or in some other way that suggests permanence, the 'Dear CEO' letter said.

Listed companies will need to consider whether any intention to cancel or otherwise retire a class of irredeemable shares, or similar shares, at a price based on factors other than prevailing market price, or their company's deliberation on any such intention, constitutes inside information, said the letter.

"We recognise that there is a tension between investors' desire to see a permanent resolution to any remaining concerns and the desire of company boards not to limit their (and their successors') scope for action," it said.

The letter follows a phase of instability in the pricing of preference shares, after insurer Aviva announced an intention to cancel certain irredeemable shares it had issued at, or close to, par value.

Aviva later scrapped its plan following a backlash among investors but other listed companies with irredeemable shares, or similar types of shares, have not clarified their position, the FCA said.

A group of institutional investors representing 29 percent of Aviva's 450 million preference shares wrote to Britain's finance ministry last week, highlighting legal uncertainty for preference shareholders and asking the ministry and the FCA to close "the legal loophole...that has allowed this situation to develop".

Fixed income investor and campaigner Mark Taber wrote last week to Lloyds Banking Group, asking for public confirmation the bank would not seek to cancel its preference shares.

Lloyds declined to comment.

Taber said on Thursday the FCA's letter was a "positive step" but did not resolve the issue that "the default position under UK law is at odds with that in other leading financial markets".

Financial sector preference shares fell across the board after Aviva announced its plan to cancel the shares. They have since recovered the bulk of their losses.

Preference share prices - https://reut.rs/2JZxDhJ

(Additional reporting by Emma Rumney and Lawrence White, graphic by Alasdair Pal, editing by Sinead Cruise and Elaine Hardcastle)

By Maiya Keidan and Carolyn Cohn

Stocks treated in this article : Aviva, Lloyds Banking Group