The City’s regulator has threatened to impose unlimited fines on investors that breach its new rules on betting against UK bank shares amid a flurry of late disclosures by hedge funds.

The warning came yesterday as Gordon Brown promised new permanent rules to curb short-selling once the Financial Services Authority (FSA) ban expires in January. The Prime Minister said: “We’ll be reviewing over the next four months and I think you will find new rules for the future.”

Such a move could further threaten the hedge funds industry, which has grown explosively in London. The FSA last week introduced measures to tackle short selling of UK bank shares, fearing falling prices would undermine the financial system.

It ruled that any short position greater than 0.25 per cent of a market value of any 34 named financial stocks must be disclosed by 3.30pm on Tuesday this week. A number of other companies have since approached the regulator asking to be included on the list.

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