FCA Short Selling Regime: Understanding the Proposed Changes to UK Reporting Requirements

The Financial Conduct Authority (FCA) has published Consultation Paper CP25/29, proposing a streamlined short selling regime that could significantly impact how UK investment managers, trading desks, and hedge funds approach their disclosure obligations. Published on 28 October 2025, these proposals represent a fundamental shift away from EU-derived regulation towards a framework better suited to UK market needs.

For firms engaged in short selling activities, understanding these changes is critical. The consultation closed on 16 December 2025, but the proposed rules will shape compliance obligations for years to come. This article breaks down the key proposals and explains what they mean for your firm's operational and compliance frameworks.

Background: Why Is the FCA Reforming Short Selling Rules?

Since Brexit, the UK has retained much of the EU's short selling regulation, which was designed to enhance market transparency and reduce systemic risk during periods of market stress. However, these rules have been criticised for being overly prescriptive and burdensome, particularly for firms operating solely in UK markets.

The FCA's proposals in CP25/29 aim to create a more proportionate regulatory framework that maintains market integrity whilst reducing unnecessary compliance costs. The regulator has taken a principles-based approach, seeking to preserve transparency where it matters most whilst eliminating requirements that provide limited regulatory benefit.

Key Proposed Changes to the Short Selling Framework

Extended Reporting Deadlines: From 15:30 to 23:59

One of the most significant practical changes is the extension of the reporting deadline for net short positions. Under the current regime, firms must report qualifying short positions by 15:30 on the trading day following the transaction (T+1).

The FCA proposes extending this deadline to 23:59 on T+1, providing firms with an additional 8.5 hours to complete their reporting obligations. This change acknowledges the operational challenges firms face, particularly those managing complex portfolios across multiple time zones or dealing with late-day position reconciliations.

Practical Impact: This extended window should reduce the pressure on middle-office teams and compliance functions, allowing more time for accurate position calculation and reducing the risk of reporting errors or missed deadlines.

Aggregated Anonymous Disclosure Replaces Named Disclosure

Perhaps the most substantial policy shift is the proposed replacement of the 0.5% named disclosure threshold with an aggregated anonymous disclosure mechanism.

Currently, when a firm's net short position in a UK-listed company reaches 0.5% of issued share capital, the FCA publishes the firm's name alongside the position size. This public disclosure requirement has been controversial, with firms arguing it reveals proprietary trading strategies and can lead to market distortion.

Under the new proposals, the FCA would instead publish aggregated data showing total short interest in a company without identifying individual position holders. This approach aims to maintain market transparency at the macro level whilst protecting commercially sensitive information at the firm level.

Key Considerations:

Firms would still be required to report positions to the FCA at the same thresholds
The FCA would maintain its ability to monitor individual firm positions for supervisory purposes
Market participants would still have visibility of overall short selling activity
The change could reduce reputational and strategic risks associated with public disclosure

Five-Year Record Retention Requirement

The FCA proposes introducing a five-year retention period for all records related to short selling reporting obligations. This aligns with retention requirements across other areas of FCA regulation and reflects the regulator's need to investigate potential market abuse or conduct issues that may only come to light years after the event.

Firms will need to ensure their record-keeping systems can accommodate this requirement, including maintaining:

Records of net short position calculations
Supporting documentation for reported positions
Internal approvals and sign-offs
Communications related to short selling activity
Audit trails for position changes and reporting submissions

UK Sovereign Debt Removed from General Scope

The proposals would remove UK sovereign debt (gilts) from the general scope of the short selling regime. This change recognises the unique characteristics of government bond markets and the limited transparency benefits of applying short selling disclosure rules to these highly liquid, systemically important instruments.

What This Means: Firms engaged in gilt trading and repo activities would no longer need to monitor and report net short positions in UK government securities under the short selling regime, though other regulatory obligations would continue to apply.

Who Is Affected by These Changes?

The proposed regime changes will impact a broad range of market participants, including:

Investment Managers

Asset managers running long/short equity strategies, market-neutral funds, or employing hedging strategies that involve short positions will need to assess how the new framework affects their compliance obligations. The extended reporting deadline offers operational relief, whilst the anonymous disclosure approach may influence portfolio construction and risk management decisions.

Trading Desks

Proprietary trading desks and market-making operations that hold short positions, even temporarily, must ensure their systems and procedures can adapt to the new requirements, particularly the five-year retention obligation.

Hedge Funds

Hedge funds employing short selling strategies are likely to be the most significantly affected. The shift to aggregated anonymous disclosure could influence trading strategies, particularly for funds whose approaches may have been constrained by concerns about public disclosure.

Compliance and Operations Teams

Compliance functions will need to update policies, procedures, and training materials to reflect the new regime. Operations teams must ensure trade reporting systems, position monitoring tools, and record-keeping infrastructure can accommodate the revised requirements.

What This Means for Your Firm

Immediate Actions

Even though the consultation has closed, firms should begin preparing for the likely implementation of these changes:

Gap Analysis: Conduct a thorough review of current short selling compliance procedures against the proposed requirements. Identify areas where systems, controls, or processes need enhancement.
System Readiness: Assess whether current trade reporting and position monitoring systems can accommodate the five-year retention requirement and revised reporting timelines.
Documentation Review: Update compliance manuals, procedure documents, and training materials to reflect the proposed changes, ready for quick implementation once final rules are published.
Resource Planning: Consider whether the new regime requires changes to team structures, responsibilities, or resource allocation within compliance and operations functions.

Ongoing Compliance Considerations

Looking ahead, firms should focus on:

Enhanced Record-Keeping: The five-year retention requirement demands robust record-keeping infrastructure. Ensure your systems can maintain complete audit trails of position calculations, reporting submissions, and supporting documentation.

Monitoring and Surveillance: Even with anonymous disclosure, the FCA retains full visibility of individual positions. Maintain strong monitoring controls to ensure accurate and timely reporting.

Training and Awareness: Ensure front-office, middle-office, and compliance personnel understand the new requirements and their respective responsibilities under the revised framework.

Regular Testing: Implement periodic testing of reporting procedures to identify potential issues before they result in compliance breaches.

The Broader Regulatory Context

These short selling reforms are part of the FCA's wider agenda to create a regulatory framework that supports UK competitiveness whilst maintaining high standards of market integrity. The proposals demonstrate the regulator's willingness to diverge from EU rules where there is a clear case for a more proportionate UK-specific approach.

However, firms should note that the FCA's commitment to transparency and market surveillance remains unchanged. The shift to anonymous disclosure does not signal a relaxation of regulatory oversight; rather, it represents a more targeted approach that focuses supervisory resources where they can be most effective.

Preparing for Implementation

Whilst the FCA has not yet announced an implementation timeline, firms should anticipate that final rules could be published in the first half of 2026, with implementation following 6-12 months later. This provides a window for preparation, but early action is advisable given the operational and systems changes that may be required.

Key preparation steps include:

Engaging with Technology Providers: If you rely on third-party systems for position monitoring or trade reporting, engage with vendors early to ensure they can support the new requirements.
Updating Compliance Frameworks: Review and update your firm's compliance monitoring programme to reflect the new regime, including any changes to key risk indicators or testing procedures.
Considering Outsourcing Options: Some firms may find that the enhanced record-keeping and reporting requirements justify outsourcing certain compliance functions to specialist providers.

How MEMA Consultants Can Help

At MEMA Consultants, we specialise in helping investment managers, trading firms, and hedge funds navigate complex regulatory requirements. Our team of former FCA supervisors and compliance specialists can support your firm in preparing for the new short selling regime.

Our services include:

Gap analysis and impact assessments to identify how the new rules affect your firm
Policy and procedure development tailored to your business model and risk profile
Systems and controls reviews to ensure your infrastructure can meet enhanced record-keeping requirements
Training programmes for front-office, operations, and compliance teams
Ongoing compliance support through our FCA compliance consultants service

For firms not yet authorised but planning to engage in short selling activities, our FCA authorisation specialists can guide you through the application process and ensure your compliance framework meets regulatory expectations from day one.

Conclusion

The FCA's proposed reforms to the short selling regime represent a significant opportunity to reduce compliance burden whilst maintaining market integrity. The extended reporting deadline, shift to anonymous disclosure, and removal of gilts from scope all point towards a more proportionate and operationally manageable framework.

However, the five-year retention requirement and continued supervisory focus on accurate reporting mean firms cannot afford complacency. Early preparation, robust systems, and expert guidance will be key to ensuring smooth implementation and ongoing compliance.

As the FCA moves towards finalising these rules, staying informed and proactive will help your firm adapt effectively and maintain competitive advantage in an evolving regulatory landscape.

Need help preparing for the new short selling regime? Contact MEMA Consultants today for a confidential discussion about how we can support your compliance needs. Our team of regulatory specialists is ready to help you navigate these changes with confidence.

Get in touch: Visit memaconsultants.co.uk or email us to arrange a consultation.