Hunt's plan for 'BigBang 2.0' blocked by City watchdog - The Telegraph

Jeremy Hunt faces mounting opposition from regulators over plans to slash red tape in the City, damaging Tory hopes of a post-Brexit “Big Bang 2.0”.

Officials from the Financial Conduct Authority (FCA) have argued against relaxing short-selling rules, despite the Chancellor pledging to ease regulations as a key part of his Edinburgh Reforms, the Telegraph can reveal.

The regulator is opposed to any material relaxation of the EU-era regulations. In recent roundtable meetings with City stakeholders, FCA officials disclosed that they want to retain key parts of the current rulebook, according to several people in attendance. 

The officials argued that the Brussels-era regime allows the regulator to obtain a fuller picture of what happens in financial markets and helps it to become more “data driven”.

The regulator’s reluctance to overhaul the rulebook could put it at odds with the Treasury, which has signalled that it is intent on watering down rules in this area.

One source at the meeting said: “We are seeing a split. The FCA is keen to maintain a lot of these rules, while the Treasury wants to present the current rulebook as EU overreach and is looking to cut red tape.

“While we have yet to see any policy proposals, we have seen a direction of travel from the Government, which the FCA seems keen to pour cold water on.”

Another person involved in the talks said: “If you compare the FCA to the Treasury, there was more hesitancy from the regulator to reform these rules.”

Any divergence on overhauling short selling rules could set the stage for a new spat between Government and financial regulators, which have been at loggerheads on several occasions in the last year.

The divergence of views on reforms sets the stage for another standoff between Treasury officials and FCA boss Nikhil Rathi Credit: Hollie Adams/Bloomberg

In November, prime minister Rishi Sunak and Mr Hunt abandoned plans to give ministers the power to overrule City watchdogs in an embarrassing climbdown following a rare public backlash from the FCA and the Bank of England.

In December, as part of the “Edinburgh Reforms” aimed at turbocharging the Square Mile, Mr Hunt pledged to “remove any unnecessary burdens which result from the EU regulation” after Brussels’ short selling rules were brought onto the UK statute book after Brexit.

Short selling is when traders borrow shares they believe will fall in price, selling them, and then waiting for the price to drop before buying it back. The trader then pockets the difference. It is a strategy commonly deployed by hedge funds.

The practice has faced criticism from certain pockets of the City, with executives such as THG’s Matthew Moulding blaming poor share price performance on “aggressive” short attacks. 

Questions were also raised about the proximity of hedge fund managers to Liz Truss’ government, who netted millions from shorting the pound following her ill-fated mini-Budget.

The Treasury launched a “call for evidence” on reforming the short selling rulebook late last year, seeking views from market participants on how to tailor the rules to best suit UK markets. The consultation closed last month.

Industry views on reforming the rulebook vary significantly, with some stakeholders calling for minimal changes in their submissions, while others are proposing more radical reforms.

The Treasury has asked for views on changes to: reporting requirements; public disclosure rules; emergency intervention powers; and an exemption for market makers.

During the pandemic, the threshold above which traders are forced to report short positions to the regulator was lowered from 0.2pc to 0.1pc of issued share capital of a listed company.  

It means a short-seller taking a position on a company worth £500m would have to spend just £500,000 to trigger disclosure rules.

It is understood that the FCA wants to maintain the threshold at 0.1pc, while market participants, including UK Finance and the Investment Association, want it raised following a significant increase in compliance and reporting burdens.

One person involved in the roundtable meetings said: “The FCA signalled it was not interested in changing the private regulatory reporting threshold back to where it was.”

The regulator also wants to keep its emergency intervention powers that would allow it to ban short selling during periods of volatility, which is opposed by several trade associations.

The FCA has not used those powers since the 2008 financial crisis.

A Treasury source said: “HMT is still committed to reform. We’re keen to understand the current functioning of the regulation and how it might be tailored to UK markets now we’re outside the EU.

“We are still reviewing responses to the consultation so it’s hard to say where we’ll end up at this point.”

A spokesman for the FCA said: “We support the Government’s approach of seeking views on whether there should be reform of the short selling regime in the UK.”

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2023-06-17 17:37:00Z
CBMiY2h0dHBzOi8vd3d3LnRlbGVncmFwaC5jby51ay9idXNpbmVzcy8yMDIzLzA2LzE3L2plcmVteS1odW50LXJlZ3VsYXRvcnMtZWRpbmJ1cmdoLXJlZm9ybXMtZmNhLWNsYXNoL9IBAA