The Financial Services and Markets Act 2000 (Short Selling) Regulations 2012

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement certain Articles of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (OJ no L 86, 24.3.2012, p1) (“the short selling regulation”).

Regulation 2(2) repeals sections 131B to 131D of the Financial Services and Markets Act 2000 (c.8) (“the Act”) which give the Financial Services Authority (“the Authority”) power to make short selling rules; this power is superseded by the short selling regulation. Regulation 7 contains a related saving provision.

Article 32 of the short selling regulation (designation of competent authorities) is implemented by regulation 4, which designates the Authority as the competent authority for the purposes of the short selling regulation.

Article 33 of the short selling regulation (powers of competent authorities) is partially implemented as follows. Regulation 2(3) and (4) amends sections 131E and 131F of the Act to give the Authority power to require information and documents which it reasonably requires for the purpose of the exercise by it of functions under the short selling regulation. Regulation 2(5) makes provision for on-site inspections by means of a compulsory power of entry under warrant where an authorised person has failed to comply with a requirement for information imposed under section 131E or 131F of the Act. Regulation 2(11) applies section 168 of the Act (appointment of persons to carry out investigations) in relation to suspected or actual contraventions of the short selling regulation. Regulation 2(12) extends section 380 of the Act to make the Authority’s power to apply to the court for an injunction available in relation to an actual or likely breach of the short selling regulation. Regulation 2(13) extends section 382 of the Act to give the court power to make a restitution order in respect of breaches of the short selling regulation.

Article 37 of the short selling regulation (cooperation in the case of a request for an on-site inspection or an investigation) is partially implemented by regulation 2(3) which makes provision for the Authority to exercise its powers to require information at the request of the competent authority of an EEA State or ESMA. Regulation 2(5) makes provision for the Authority to appoint an investigator and to apply for a warrant for entry of premises at the request of the competent authority of an EEA State.

Articles 38 and 40 of the short selling regulation are partially implemented by regulation 3 which amends the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (S.I. 2001/2188) to give effect to the restrictions in those Articles on the disclosure of information to the competent authorities of States which are not EEA States.

The requirement to establish rules on penalties and administrative measures in Article 41 of the short selling regulation is implemented by regulation 2(7) which applies the Authority’s power in section 131G of the Act to impose penalties or publish a statement censuring a person in relation to breaches of the short selling regulation, and regulation 2(8) which makes criminal penalties available for a failure by an authorised person to comply with information requirements imposed under section 131E or 131F of the Act.

The Regulations also contain provision about notifications and applications to the Authority under the short selling regulation and make consequential amendments to the Act.

Regulation 8 requires the Treasury to review the operation and effect of these Regulations and publish a report within five years after they come into force and within every five years after that. Following a review it will fall to the Treasury to consider whether the Regulations should remain as they are, or be revoked or amended. A further instrument would be needed to revoke or amend the Regulations.

A full impact assessment of the effect that these Regulations will have on the costs of business and the voluntary sector is available from Victoria Gibbs, Primary Markets and Market Conduct team, Her Majesty’s Treasury, 1 Horse Guards Road, London SW1A 2HQ and is published with the Explanatory Memorandum alongside the Regulations on www.legislation.gov.uk.