The recent Tesco fine represents the first time that the UK's Financial Conduct Authority has used its powers under s384 Financial Services and Markets Act to require a listed company to pay compensation for market abuse. It is unlikely to be the last.

Tesco plc and Tesco Stores Limited (Tesco) agreed at the end of March that they committed market abuse in relation to a trading update published on 29 August 2014, which gave a false or misleading impression about the value of publicly traded Tesco shares and bonds. Tesco have agreed to pay compensation to investors who purchased Tesco shares and bonds on or after the 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014.

On 29 August 2014, Tesco plc 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 £1.1 billion. On 22 September, Tesco published a further 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.”

Tesco knew (or, the FCA argues, could reasonably have been expected to know) that the information in the earlier announcement was false and/or misleading. The FCA's accusation does not extend, however, to the Tesco board.

The untruth inflated the market price for Tesco shares and bonds temporarily. Under the compensation scheme Tesco will pay an amount to each purchaser of Tesco shares and bonds who makes a claim under a proposed scheme that is equal to the inflated amount for each share or bond. The inflated amount has been established with the assistance of an independent expert engaged by the FCA. The scheme is open to all and the FCA expects the total amount to be in the region of £85 million, plus interest.

The FCA has a database of all reported share transactions during the relevant period which indicates there were about 10,000 retail and institutional eligible investors who between them purchased approximately 320 million shares during the period and who may be eligible for compensation under the scheme, which will be operating by 31 August, administered by the accountancy firm of KPMG.

Tesco recently signed a deferred prosecution agreement with the Serious Fraud Office relating to false accounting, agreeing to pay a fine of £128,992,500. This persuaded the FCA not to impose a fine of its own.