By Huw Jones and David Milliken
LONDON (Reuters) - Volatility in markets during the COVID-19 shock point to underlying issues in the non-bank financial sector and steps may be taken to tighten the rules governing it, Bank of England Governor Andrew Bailey said on Thursday.
The BoE's Financial Policy Committee will publish preliminary findings from its assessment of risks from non-banks in early August, Bailey told Britain's finance minister Rishi Sunak in a letter made available to the media.
Non-banks can include investment funds and money market funds.
"Where appropriate, the assessment will identify gaps in resilience in the non-bank financial sector and the potential measures that may be taken to increase resilience," the letter said.
Money market funds came under severe stress during bouts of heavy market volatility in March and were helped by broader central bank interventions to boost liquidity in markets. Many UK retail property funds were suspended as they were unable to value their assets.
The assessment will set out a list of possible indicators that the FPC could publish regularly to monitor risks from non-banks, Bailey said.
The BoE had already begun working on reducing risks in open-ended funds after the suspension of retail property funds in the aftermath of the June 2016 vote to leave the European Union, and later on the shuttering of a flagship fund run by then star stockpicker Neil Woodford.
Bailey said the FPC will have "regards to opportunities" in financial services from Britain's departure from the EU in relation to competition, innovation and competitiveness where it does not threaten financial stability.
Backers of Brexit have said that leaving the EU is an opportunity be more flexible with regulation to help London remain a globally competitive financial centre.
The BoE said it was committed to robust financial rules irrespective of Britain's future EU relationship.