dries up. i do not start from the view that leverage poses the same scale or nature of risks in the market - based finance world as it does in banking. but nor am i confident at present that it is without systemic risk. we do not have the tools to make that assessment yet. we need a better set of lenses through which to view leverage in this world in order to assess the risks that it might pose to the system as a whole – hence the work now underway in iosco and elsewhere. the use of financial leverage i. e. borrowing to gear up exposure to risk looks to be materially lower in market - based finance than in the banking world. bank of england baranova et. al. recommendations for liquidity risk management for collective investment schemes, february 2018 as reported in bank of england financial stability report, november 2017. the in - depth assessment will seek to develop the fpc ’ s understanding of how non - banks use leverage, and what financial stability benefits and risks arise from leverage. it will examine measures of leverage and its distribution throughout the non - bank financial system. all speeches are available online at www. bankofengland. co. uk / speeches retail investment funds in most jurisdictions are heavily constrained by regulation on the amount of borrowing they can do. in the uk, insurance companies are limited users of financial leverage. pension funds are active in repo markets but do not run highly leveraged positions. financial leverage for risk taking is most prevalent in the hedge fund sector, but even here it appears to be relatively low compared to banks. the risks from synthetic leverage - the leverage that is embedded in derivative contracts - is, however, much harder to measure, let alone categorise. funds make very significant use of derivative contracts. an fca survey published in 2015 suggested hedge funds have outstanding notional derivative positions 28 times greater than their net asset value. but, in many cases derivatives seem to be used to hedge and reduce rather than to gear up risk. and notional values are rarely an accurate measure of risk exposure from a derivative. so measures of total net economic leverage are preferable. that is, measures which show the extent to which derivatives increase or decrease a fund ’ s overall exposure to risk factors such as asset prices or interest rates. the issue here is not just whether we can identify how much synthetic leverage is being used to reduce rather than to take on risk. it is also to identify, at the level of the financial system

for capital requirements for exposures to smes. in general, we will always listen to arguments when people disagree with us, and we will always take into account new evidence. this includes tailoring rules that are already in place in response to our own evaluations or to evidence from industry, broader civil society and other stakeholders. this is what we did when we implemented an earlier basel regulatory package known as crr2. in that case, we implemented a new standard for banks ’ long term funding after tailoring it to be more risk sensitive for activities that are important for the uk. that was a change we made in response to evidence - based arguments we received during the consultation. we are now taking the same approach to work on solvency ii rules for insurers. debates between us and the government have got a lot of public attention. but there are many areas where we fully agree about the benefits from simplifying the regime to better reflect the needs of the uk. and with the high - level policy decisions now clear, we are focused on implementation and on delivering detailed proposals for consultation. my colleague sam woods recently set out what we are committed to doing. all of this will be on top of what we are already doing to remove unnecessary rules we inherited from our time in the eu. we have so far deleted 13 guidelines issued by eu regulators, five superseded supervisory statements and 26 technical standards onshored from the eu. this work will continue. so too will our work simplifying rules about reporting. growth and competition one of the benefits of tailoring rules to uk circumstances is that it helps to facilitate effective competition in markets we regulate. i see connections between that objective, which we already have, and our new competitiveness and growth objective. that ’ s because an efficient market is one that allocates resources to their best use, including by ensuring that there aren ’ t parts of the economy struggling to access finance that they should be able to secure. i don ’ t want to be too simplistic about it – but in general terms what is good for competition is broadly good for growth. the importance of competition means that we need to act when rules that are proportionate for large firms are not proportionate for small ones. doing so removes barriers to entry. that is why we have invested in the strong and simple project to create a simplified regime for small banks and building societies. today we are publishing our first set of policy proposals for this simpler regime. these are set