The City’s chief regulator staged a dramatic policy U-turn yesterday and declared a two-week amnesty for hundreds of directors who have pledged their shares to back personal loans.

The move means that David Ross, the co-founder of Carphone Warehouse, who last month resigned as a director amid a row over his failure to declare pledging his £193 million Carphone stake, will escape censure.

Mr Ross, a director of Carphone and a close friend of Charles Dunstone, its chief executive, caused a sensation last month when it emerged that he had pledged shares in four companies of which he was a director in exchange for about £100 million in loans.

His failure to disclose this to Carphone appeared to put him in breach of Financial Services Authority (FSA) rules and Mr Ross was forced to resign three of the four directorships.

As well as leaving Carphone’s board, he resigned from Big Yellow, the storage group, and National Express, the transport operator. He offered his resignation to Cosalt, the marine safety group, but it refused to accept it.

The FSA said yesterday that it would take no action against directors who have previously flouted its rules.

A spokesman for Mr Ross said: “We welcome this clarification by the FSA on this area where there has clearly been widespread uncertainty. This has been borne out by both David’s experience and also the number of directors from other companies who have recently disclosed similar arrangements or sought advice on the meaning of the rules.”

Directors have until January 23 to disclose having used their shares as collateral for loans. After that they will be subject to the FSA’s market abuse regime, which can impose unlimited fines.

Within hours of the formal FSA announcement, Hardy Oil & Gas revealed that Sastry Karra, its founding chief executive, has had 5,700,000 company shares on deposit with UBS as collateral against some of his other shareholdings since 2006. That stake is valued at about £9.6 million.

The company said that Mr Karra believed that his arrangements did not constitute a financial transaction under FSA rules; however, in the wake of the furore over Mr Ross and other directors, Mr Karra had taken advice and chose yesterday to go public about his position, Hardy said.

The Ross affair triggered a shares-for-loan disclosure by Michael Spencer, the chairman of Numis, the AIM stockbroker and treasurer of the Conservative Party. Mr Spencer admitted having pledged £15 million Numis shares as security for a bank loan.

It was unclear at that time whether Mr Spencer had been duty-bound to disclose his position as a director of a company listed on the junior market, whose rules are less onerous than those covering the main market-listed companies. The FSA now admits that its rules governing disclosure and transparency were open to question.

The rules fall under the EU Market Abuse Directive, which states that granting security over shares must be disclosed, but the rules are not exhaustive about the circumstances.

However, the regulator said that there should be no doubts about its Model Code, which makes the company, and not an individual, responsible for policing the rules. This states that directors need to seek company clearance when using their shares as collateral. Numis and Carphone Warehouse declined to comment.

The FSA’s decision not to pursue Mr Ross technically leaves him free to reapply to become a director of the three companies. This is not thought likely in the case of Carphone, which was also exonerated by the FSA yesterday. A source familiar with Mr Ross’s plans said: “I think it is move-on time.”

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