Hedge funds are aiming to capitalize on Brexit and leverage a global push towards deregulation by urging the UK financial regulator to reduce reporting obligations in the sector. Currently, under rules carried over from the EU, the Financial Conduct Authority (FCA) mandates that both buy-side institutions, such as hedge funds, and sell-side institutions, like investment banks, report market transactions. Hedge funds claim this represents an unnecessary duplication of efforts and are advocating for the removal of reporting requirements for buy-side institutions, a change enabled by the UK’s departure from EU rules.
The sector believes it has political support, as the UK government is advocating for the reduction of regulatory red tape to boost the stagnant economy. Additionally, former US President Donald Trump’s push for deregulation in the United States adds momentum to calls for reducing regulatory burdens in London’s financial district. Bryan Corbett, CEO of the Managed Funds Association, which represents several major US hedge funds, stated that easing redundant requirements while maintaining regulatory oversight would enhance the UK’s appeal as a global financial hub.
The Managed Funds Association urged the FCA to exclude buy-side firms from transaction reporting, labeling the current dual-reporting system as duplicative, costly, and inefficient. The FCA appeared inclined to ease these rules, as suggested by a discussion paper released in November, which outlined plans for a streamlined transaction reporting regime customized for the UK. The objective is to reduce business costs and enhance the attractiveness of UK capital markets.
Annually, the FCA receives over 7 billion reports on transactions carried out in British financial markets across more than 20 million reportable instruments, which include equities, futures, total return swaps, and exchange-traded funds. It is estimated by a letter from AIMA, a London-based hedge fund trade organization, that UK financial firms spend over £500 million annually on transaction reporting.
According to Adam Jacobs-Dean, a managing director at AIMA, members frequently cite transaction reporting as a significant compliance challenge. He advocates for the exclusion of buy-side investment firms from transaction reporting requirements, arguing that sell-side firms typically report transactions and such a move would not compromise the FCA’s information quality or oversight capabilities. Aligning with US practices, where buy-side firms are not required to report transactions, could be a beneficial step for the UK, he added.
Jacobs-Dean also opposed the FCA’s suggestion of extending reporting requirements to include firms governed by AIFMD and UCITS regulations, beyond those under the MIFID II rules. In light of Sir Keir Starmer’s request for pro-growth proposals, the FCA expressed in a letter to the prime minister its intention to review reporting requirements’ proportionality and remove redundant returns, which could benefit approximately 16,000 firms initially. The regulator, planning to release proposals for altering its reporting rules later this year, reiterated its dedication to eliminating unnecessary reporting requirements to support economic growth, as outlined in its communication to the prime minister.
