UK markets supervisor rejects EU regulatory guidance The new UK markets supervisor has for the first time rejected formal EU guidance on financial regulations this summer, adopting alternative rules that favour bankers and brokers. The Financial Conduct Authority, which opened in April, has broken publicly with the formal EU interpretation of two different rules in the past three months, in moves which City experts have linked to the government's recent tougher stance on Europe. Lawyers described the shifts as significant milestones coming as the UK seeks to minimise the negative impact on the City of financial regulations. "The decision by the FCA to publicly break ranks ... is an important departure that must have been sanctioned at the highest levels," said Nicola Higgs, a solicitor with Ashurst. The detrimental impact of some European measures on London has been limited. In late May, the FCA formally rejected the direction on tough new short selling rules issued by the European Securities & Markets Authority. The FCA's version allowed banks that buy and sell over-the-counter derivatives to seek a market-maker exemption, while Esma did not. Germany, Denmark, France and Sweden also rejected part of the short selling guidelines. The French explicitly said they were not complying "in order to avoid competition distortion" caused by looser rules elsewhere. Then on August 15, the FCA announced it had also declined to follow a European Commission interpretation of the alternative investment fund managers directive. The EU said fund managers cannot offer both AIFM services and brokerage services under the EU's markets in financial instruments directive (Mifid) on a cross-border basis, but the FCA disagreed. The FCA and the Treasury each downplayed a possible split with Europe on financial regulation. They noted that the AIFMD and the short-selling regulation were unusually controversial when adopted and that the AIFMD was passed as a directive so the UK has more freedom to stray from the EC interpretation. The FCA is fully engaged with Esma's policy work, and carefully considers each guideline on a case-by-case basis. We have fully complied with all but one of guidelines issued to date," an FCA spokeswoman said. An Esma spokesman said individual member states are legally entitled to disagree as long as they explain their reasoning, which the UK has done. But several London bankers and investment managers linked the FCA's changed attitude to the government's tougher stance on Europe. "There is a lot of political pressure from Whitehall for pushback against Europe and a view that the UK has to look after itself," said one banker who declined to be identified. Some in the City say they hope the UK will also reject other EU guidance, including the European Banking Authority's tougher than expected rules on new EU bonus restrictions.