U.K. FSA Said to Open Probe Into Shorting of Banks

The U.K.’s securities markets regulator will investigate short-selling of British banks and financial-services companies to determine whether any illegal market abuse occurred, a person close to the planned probe said.

The Financial Services Authority will examine whether false rumors or leaks were spread in the weeks before the London agency temporarily banned short-selling of U.K. financial institutions on Sept. 18, the person said.

The FSA “want to look like they’re doing something,” said Ian Mason, a former FSA enforcement director and now a regulatory lawyer at London-based Barlow Lyde & Gilbert. “If they do commence such an investigation, we can expect it to be large- scale and intensive.”
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The U.K. banned short selling of dozens of financial companies until mid-January after politicians and investors blamed the practice on market instability, such as a plunge in the market value of HBOS Plc before it agreed on Sept. 17 to a takeover by Lloyds TSB Group Plc. Almost $600 billion of credit losses have prompted banks to hoard cash and spurred the U.K. government’s seizure of Bradford & Bingley Plc.

The FSA’s probe comes a week after the U.S. Federal Bureau of Investigation started a criminal investigation into 26 companies, including Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc. for possible accounting misstatements.

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