The City watchdog is considering fresh guidelines around the sale of private polling data to hedge funds looking to profit from major political events such as Brexit.
The practice came under fire after a report detailed how hedge funds – eager to cash in on currency market volatility and profit from the EU referendum – commissioned private exit polls to bet on the price of sterling in the run-up to the June 2016 vote.
Those private polls showed a Brexit win, giving hedge funds an edge over the public, as broadcasters ran comments after the polls closed from prominent Brexiter and the former Ukip leader Nigel Farage suggesting that the remain vote would “edge it”.
The Conservative MP and Treasury committee chair, Nicky Morgan, has warned that the sale of private polls to hedge funds during key political events poses risks to the “integrity of UK financial markets”.
The Financial Conduct Authority previously said it would not crack down on hedge funds over the purchase of private polls unless it was used in a way that broke the rules.
But its chief executive, Andrew Bailey, told MPs on the Treasury committee on Tuesday that he had given the issue “quite a bit of thought” and is looking at whether the FCA could step in through regulations meant to cover insider dealing and inside information.
“I think the market abuse regime bites here,” Bailey said. The FCA’s Market Abuse Regulation extends the regulator’s reach to new markets, platforms and “behaviours” and aims to boost “market integrity and investor protection”.
Additional scrutiny by the FCA could be significant as Britain hurtles towards a formal exit from the EU on 29 March. Interim events such as Tuesday’s parliamentary vote on Theresa May’s exit deal continue to grip markets and create opportunities for investors and hedge funds to cash in.
“We are giving thought at this stage … as to whether we could usefully issue guidance, not obviously to change the rules but to issue guidance on the application of the rules, particularly on this question of inside information,” Bailey said.
He pointed to similar work undertaken by the FCA to help the Office for National Statistics when it aimed to end the circulation of official data ahead of its release. That is despite the ONS falling outside the FCA’s regular jurisdiction.
“We helped them to get that outcome using the market abuse regulation regime … it might be somewhere where guidance might help,” Bailey explained.
The FCA chief is finally due to sit down with representatives of the British Polling Council and Market Research Society, which regulates the polling industry, from next week. The FCA publicly confirmed plans to meet both groups back in October.
Morgan wrote to British Polling Council president, Sir John Curtice, in the autumn, highlighting concerns over “potential conflicts of interest in the business model of the polling industry”.
She pointed to the practice of making market sensitive data such as exit polls available to private clients before it can be legally released to the public, and the way revenues from private polling work may help subsidise public work.
“At worst, there could exist a perverse incentive for polling companies to provide misleading or inaccurate information to the media, while providing high-quality analysis on the true state of public opinion to private clients,” she said.
Curtice hit back, saying: “The implication of this remark appears to be that during the EU referendum polling companies may have deliberately released inaccurate published polls at less than cost price because this enabled them to extract a higher fee from their private clients.
“Casting doubt as it does on the professional integrity of the industry, it is a suggestion that we feel either needs to be substantiated or withdrawn.”
The Treasury committee has not responded to Curtice.