"Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct."
This is the first time the FCA has used its powers under section 384 of the Financial Services and Markets Act to require a listed company to pay compensation for market abuse.
Tesco has also been fined £129 million by the Serious Fraud Office, resulting in the FCA deciding not to impose a further financial penalty.
On 29 August 2014, Tesco published a trading update in which it stated that it expected trading profit for the six months ending 23 August 2014 to be in the region of £1.1bn. On 22 September 2014, Tesco plc published a further trading update in which it announced that it had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs.”
The FCA says Tesco knew "or could reasonably have been expected to know" that the information in the 29 August 2014 announcement was false or misleading.
The regulator estimates the total amount of compensation that may be payable under the scheme will be approximately £85 million, plus interest. In total, Tesco expects to take a charge of £235 million in its 2016/17 accounts.
The compensation scheme will launch by 31 August 2017 and will be administered on Tesco’s behalf by KPMG.
Andrew Bailey, Chief Executive of the FCA, said: “Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets. The FCA is committed to UK markets being fair, transparent and thus competitive. Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct. They have cooperated fully with us and this sets a good example for the market and so is a good outcome for Tesco and investors.”
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "This is a big slap on the wrist for Tesco, reflecting the seriousness of the offence and its impact on the share price in 2014. Investors will be pleased that compensation is now going to be issued to those who bought shares in the supermarket at an inflated price, based on false information.
"This kind of accounting error is exceptionally rare in the UK stock market, nonetheless shareholders in all companies will be heartened to learn that in instances where false information is provided to the market, the regulator will see to it that investors are duly compensated.
"Dave Lewis underwent a baptism of fire when he took over as CEO in 2014, just as the accounting scandal struck. He and the supermarket will now be hoping to draw a line under the matter, and concentrate on nurturing Tesco’s nascent recovery."
