UK financial watchdog finds no signs of insider trading around pre-Budget leaks

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The UK financial watchdog has found no evidence of insider trading or market manipulation during the Budget leaks that caused turmoil in the run-up to Rachel Reeves’ financial statement last month.

The Financial Conduct Authority had conducted a “very detailed and granular assessment” of market activity on November 26, the day of the Budget, and identified nothing to indicate someone had traded on insider information for personal gain, chief executive Nikhil Rathi told MPs on Tuesday.

The Office for Budget Responsibility’s accidental early release of its Budget analysis almost an hour before Reeves delivered her statement to parliament triggered sharp movements in bond markets and later led the chair of the fiscal watchdog to resign.

Between the early release of the OBR analysis and the chancellor’s Budget speech, Rathi told the House of Commons Treasury committee that “liquidity did diminish because I think there was so much trading”.

But he added: “We haven’t identified anything that suggests there was any insider trading or anything like that.”

However, the FCA chief criticised the watchdog’s decision to remove its Budget report from its website after realising it had been released by mistake, saying it would have been better left online.

The Treasury said this month it had launched an inquiry into pre-Budget leaks, assigning the department’s permanent secretary James Bowler to look into “security processes” and learn lessons for future events.

Conservative shadow chancellor Sir Mel Stride has called for the FCA to investigate “possible market abuse” by people working in the Treasury and Downing Street leaking information about the Budget, the date of which was announced in early September.

But Rathi said the regulator had little appetite to probe the Treasury over pre-Budget leaks. “It is absolutely normal for a government in parliamentary discourse for issues to be discussed and debated that will have an impact on the economy and markets,” he said.

“What we want to focus on is making sure that any disclosures are orderly and are made available to the market at large at the same time, so nobody is able to selectively gain,” he added.

Detailed policies from the Budget were disclosed in the media before Reeves’ speech, while the Financial Times revealed on November 13 that the chancellor had abandoned an earlier plan to raise income tax rates.

Ashley Alder, chair of the FCA, said it would be “a slippery slope” if the regulator intervened whenever political debates moved markets. 

“It is fundamentally not our role to make judgments on political discourse even though it may have an impact on markets,” he said, adding that there was “one aspect of this which everybody concerned believes is far from ideal and that is leaks”.

The FCA, which reports to the Treasury, has agreed to provide training and guidance to the OBR on how to improve its handling of market-sensitive information.

Rathi said its training could include a “case study” on the watchdog’s decision to take its Budget analysis offline after it was mistakenly released. 

“If it is accurate, it may be better to leave it out there rather than withdraw it prematurely,” said Rathi.

The gilt market rallied after Reuters began to release the key data that investors were looking for from the Budget, including an improvement in the government’s headroom against its borrowing limits, from £9.9bn to £21.7bn — more than many investors were expecting. The pound also strengthened as investors digested the leaked numbers.