The Bank of England’s attempts to push through new rules to regulate so-called ‘shadow banking’ is “hard going”, the central bank’s deputy governor has said.

Late last year, the G20’s Financial Stability Board (FSB) and global securities markets regulator body IOSCO said that tackling shadow banking would be a priority in 2024.

Shadow banking refers to the lending activities that take place outside of traditional banking institutions and regulations from non-bank financial institutions like hedge funds, money market funds, and investment banks that act as lenders and borrowers in capital markets instead of taking deposits like traditional banks. It has grown to account for just under half of the world’s financial assets.

Speaking to parliament’s Treasury Select Committee on Wednesday, Sam Woods said that attempts to regulate the sector have been slower than the series of reforms to bank capital and liquidity.

He said: "It's quite frustrating. We are making some progress."
Woods explained that achieving “meaningful reform” in the non-bank sector is challenging due to its international nature, and that cooperation from other countries is needed to achieve change.

The BoE is pushing ahead of other countries to introduce globally-agreed ‘step-in’ rules dealing with reputational and other risks from banks not helping struggling shadow banks it has connections with, Woods said.

During the session, lawmakers pressured Woods to ramp up the 'Edinburgh Reforms' which the committee described as a “damp squib”. These reforms were proposed to provide more flexible, outcomes-based financial regulations for the UK post-Brexit to maintain the competitiveness of its banking and financial services sector.

Woods disagreed with this assessment, noting that “we are going at a good pace” and said that industry wanted regulators to take more time to introduce rules following consultations.

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