Tesco to face full investigation from Financial Conduct Authority - UPDATE

Beleagured grocery giant Tesco has been notified by the financial regulator that a full investigation has begun into its recent profit overstatement.

The Financial Conduct Authority (FCA) told the FTSE 100 grocer that it will look into its £250m overstatement of expected profit for the half year, alongside the "independent" review by Tesco's accountants Deloitte and together with Freshfields, its law firm.

Tesco said it will continue to co-operate fully with the FCA and other relevant authorities considering the matter.

The FCA has the power to bring criminal charges against a company and individuals.

The FCA Enforcement Division has the power to investigate and take proceedings against individuals, compel individuals to attend interviews, make compulsory requests of individuals for information and documents and punish individuals by way of financial penalty, public censure and/or removal of their regulatory approvals.

"Such an investigation can only be another distraction for new CEO, Dave Lewis, and represents another black mark on the Board that Mr Lewis recently joined," said sympathetic analysts at Shore Capital.

Half-year results from the group were originally scheduled to be released on Wednesday but have been postponed until 23 October pending the probe, with Financial Reporting Council and the Serious Fraud Office also monitoring events at the group.

Four executives, including the UK unit’s chief executive and finance director, have been suspended until the outcome is revealed.

Late on Tuesday speculation emerged that Lewis intends to sell or shut the company's loss-making Blinkbox online video service, which many see as good news.

On Wednesday morning, it was reported that thousands of Tesco head office staff have been asked to work in stores in an attempt to improve service levels, 'adopting' a store and spending one day a fortnight there.

Retail analyst Steve Dresser commented that this was a "great move" as headquarters staff have become "far too detached from the reality of retail and the impact their initiatives - many of which fail to deliver".

Tesco shares were down 2.6% to 181.3p by 10:10 on Wednesday.