A message that emerged with great clarity and force from the non-financial sector participants was that there remains a major lack of trust in financial markets and financial institutions because of misconduct. Participants saw cultural and ethical changes as an essential component of restoring the social license for financial markets. The Bank of England is not responsible for market conduct and integrity in the UK. That task rests with the FCA under the very able leadership of my erstwhile colleague Andrew Bailey. But our overall responsibility for the financial stability of the UK, our prudential responsibility for the major wholesale financial firms and the Bank’s close and historic interaction with London as an international financial centre means we have a very active interest in the integrity and fairness of the wholesale financial ecosystem which is located here. That is why the Bank, alongside colleagues from the FCA and HMT, led the fair and effective markets review which reported last year and why we have made significant progress in ensuring that its recommendations are implemented. 8  7  See ‘From ‘ethical drift’ to ‘ethical lift’: Reversing the tide of misconduct on global financial markets’, Remarks given by Minouche Shafik, 20 October 2016, available at: www.bankofengland.co.uk/publications/Pages/news/2016/078.aspx.
And I for one will continue to treat with caution generalised claims of ‘unintended consequences’, comparisons of conditions with the pre-crisis years and dire threats that regulation is preventing the financial sector from doing its job of providing credit and liquidity. My second point about regulation is that the past is not a perfect guide to the future. Financial centres innovate and change at speed. New products and ways of working can become significant very quickly. And sectors that have not generated risk in the past can change their profile quickly. In this respect I would mention the explosive growth since the crisis in the size and importance of asset managers and in the funds they manage, especially open-ended investment funds. Market-based finance has grown very strongly in recent years. Since the crisis it has accounted for virtually all of the growth in net lending to businesses in Europe and the US. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  The assets under management of the top 500 asset managers grew by nearly $ trillion over the last 10 years or so. It now stands at $ trillion, broadly equal to annual global GDP. Over half of this is accounted for by open-ended funds, most of which promise daily liquidity to their investors. Such funds have generally been stable in times of stress – during the crisis they experienced relatively modest outflows. Unlike the banking sector they are not in the main highly leveraged.