Lawmakers Urge Bank of England for Enhanced Powers on Private Markets

The Need for Enhanced Regulatory Powers

LONDON, Jan 9 (Reuters) - British lawmakers are calling for the Bank of England to be handed new powers to gather data on private credit if a landmark stress test fails to shed enough light on risks posed by the fast-growing but opaque market.

Overview of the House of Lords Report

In a report published on Friday entitled "Private markets: Unknown Unknowns", the cross-party House of Lords parliamentary committee said there was insufficient data to determine whether the growth of private markets posed a systemic risk to the UK's financial stability.

Implications for Private Credit Markets

But it welcomed the BoE's industry stress test and urged the government to ensure the central bank had the power to collect information about the scale and the implications of the interconnections between the banking system and private credit if needed.

Government Response and Future Actions

"It's an information gathering power, it's not the same as regulating the industry," Sheila Noakes, a House of Lords member, told Reuters.

The central bank late last year launched its first stress test of how the $16 trillion global private equity and private credit industries would cope with a major financial shock, with results due in early 2027.

The parliamentary committee, which oversees financial regulators, is hoping for preliminary results to be made available.

Private credit is not directly regulated by the BoE and the central bank cannot force all firms, many of which are based overseas, to take part in the exercise.

Clive Hollick, one of the committee members, also noted that private markets should be "top-of-the-agenda" for the finance ministry after the report raised concerns that the finance ministry did not have a "firm grasp" on the issue.

"Given that there have already been some slip-ups in the United States, this deserves a much closer, more active engagement," he told Reuters.

A spokesperson for the finance ministry said it has worked to “significantly increase” the focus on non-banks in recent years and would respond to the committee’s report in due course.

The BoE has previously warned that the collapse last year of U.S. car parts maker First Brands and auto dealership Tricolor could signal bigger financial problems ahead. 

The "Private markets: Unknown Unknowns" report is the result of an inquiry by the House of Lords parliamentary committee that began in July and heard evidence from the finance ministry, regulators, banks, trade associations and asset managers.

However, Hollick told Reuters that the committee had not come across any evidence that the market was already causing harm. "We neither smelt a rat, nor saw a rat," he said.

(Reporting by Phoebe Seers and Kirstin Ridley; Editing by Susan Fenton)