Question to the HM Treasury:

To ask His Majesty's Government what assessment they have made of the current oversight and supervision of the shadow banking sector within the UK and its dependencies.

Shadow banks, also referred to as non-banks, form a significant and important part of the financial system. The Financial Stability Board (FSB) estimates non-banks covered 48% of total global financial assets as of 2020.

The Bank of England’s Financial Policy Committee (FPC) is responsible for identifying, monitoring, and taking action to address systemic risks and improve the resilience of the UK financial system, including for non-banks. The FPC undertakes regular monitoring of the non-bank sector, as well as more periodic detailed assessments and stress testing. For example, in 2021 they published an assessment of the resilience of market-based finance (which encapsulates non-banks) highlighting existing vulnerabilities within the system. The Prudential Regulation Authority (PRA) regulates insurers in the UK for prudential purposes. The Financial Conduct Authority (FCA) is responsible for the prudential regulation of authorised non-bank financial firms not supervised by the PRA and is the conduct regulator.

Maintaining a global approach to the non-bank sector is important given the international nature of the financial system. Through the FSB, HM Treasury and UK financial regulators are working closely with international partners to develop global approaches to address vulnerabilities in the non-bank sector.

On 12 October 2022, the FPC published its most recent assessment on the outlook for UK financial stability. The FPC welcomed the Bank of England’s temporary and targeted intervention in response to recent financial stability risk, and emphasised the importance of the domestic and international non-bank work to address vulnerabilities.

Regulation and supervision of the non-bank sector and wider financial system in the Crown Dependencies is conducted by their relevant regulators.