Banking by definition means that you give credit and you take deposits. Indeed, many of these institutions don’t do that. But on the other hand it is certainly true that some vehicles have been created to remove risk from banks and thus reduce their regulatory capital requirements, with such vehicles being used in order to escape supervision. That is what we cannot accept any more. We cannot afford another crisis of the magnitude we had. How would you manage that risk? We need to be determined and implement the rules that were agreed at the Pittsburgh G20 summit. But not everything is shadow banking. For example, the World Bank – and above all its sister organisation the International Finance Corporation (IFC) – is doing a lot of financing through Luxembourg. All the international development banks are issuing through Luxembourg because of its efficient legislation. Many corporations which operate worldwide cannot raise funds in each country; it’s more efficient to bundle them. I would say that this is efficient international finance, not shadow banking, and it does not create additional risk for the customer but rather lowers the cost of funding. Another topic for discussion is money market funds, which to some extent can have leverage and so are much closer to being like a bank. And that is also the reason why money market funds are obliged to report to the ECB. Then you have investment funds from entities like investment banks, private equity and other alternative investment funds (AIFs).

The UK authorities have announced a work programme to scan the horizon for potential market or private sector co-ordination failures that may be damaging the fairness or effectiveness of FICC markets. 15  The authorities will seek to catalyse reforms to insure that market structures that are vulnerable to manipulation and misconduct do not develop over time. Conclusion  The examples above show how the UK has put in place a set of reforms to improve standards and ethics in financial markets. We have not tried to regulate culture, but we have used a combination of hard law and soft law to raise expectations and norms. It will take time to move from ‘ethical drift’ to ‘ethical lift’. Better regulation is part of the solution, but so is a more effective partnership between the official and private sectors to improve market practices and conduct norms. 14 15  The FX Global Code: May 2016 Update can be found at: https://www.bis.org/mktc/fxwg/gc_may16.pdf See FEMR Implementation Report at: http://www.bankofengland.co.uk/markets/Documents/femr/implementationreport.pdf 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  References Angeli, Marilena and Gitay, Shahzad (2015), ‘Bonus regulation: aligning reward with risk in the banking sector.’ Bank of England Quarterly Bulletin, 2015 Q4, Volume 55, No. 4, available at: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2015/q4.pdf. Bank of England, ‘Senior Managers Regime’, http://www.bankofengland.co.uk/about/Documents/smr.pdf Bank for International Settlements – the Foreign Exchange Working Group (2016), ‘The FX Global Code: May 2016 Update’, https://www.bis.org/mktc/fxwg/gc_may16.pdf Cullen, Jay (2016), ‘A Culture Beyond Repair? The Nexus between Ethics and Sanctions’, Just Financial Markets, Oxford University Press, ed. Herzog.