British Private Equity and Venture Capital Association (BVCA) – Written evidence (PMG0016)
The British Private Equity and Venture Capital Association (BVCA) is the industry body and public policy advocate for the private capital industry in the UK. With a membership of 600 firms, we represent UK-based venture capital, private equity and private credit firms, as well as their professional advisers and investors.
The role of private capital in UK economic growth
The UK has the world’s second largest private capital investment industry. It is a national success story that attracts capital and investment to the UK, making long-term investments to grow British businesses and build a better economy. In 2024, the total amount invested by private capital in UK businesses increased by 44% to £29.4bn, 83% of which was raised from overseas investors. This increased investment, made across sectors from consumer products to emerging technology, has fuelled the growth of businesses throughout the UK, with six in ten of the 13,000 companies backed by private capital (90% of which are SMEs) located outside London.
Private capital provides finance that boosts the growth of the UK’s best businesses, backing four-in-ten of the UK’s 100 fastest growing companies in 2024. Private capital also provides hands-on, active ownership support that bolsters governance and gives companies the access to technical, strategic and supply chain expertise required to support rapid and sustainable business growth.
The private capital ecosystem is diverse, with different types of funds backing different sized companies at different stages of their evolution. Varying balances of equity and debt financing often work together to fuel growth in the same companies.
The role of private equity and private credit in growing private companies
Companies turn to private equity funds (including venture and growth capital funds) for equity (i.e. ownership) investment. Equity investment allows and incentivises private equity firms to help their investee companies grow. This “active ownership” model is a tightly aligned, long-term partnership between private capital firms and their portfolio companies, over six years or more. This supports those companies’ growth by, amongst other things, refocussing their strategies, implementing operational improvements, making strategic acquisitions and expanding into new geographies and markets. The capital provided under this partnership includes funding for the initial investment in (or acquisition of) a company by a fund, as well as “follow-on” investments of primary capital to help finance the company’s further growth (on average around a third of all equity invested by private capital is follow-on funding).
Private credit funds support SME growth in a very similar manner, alongside and in partnership with private equity (including venture and growth) funds. They provide the same, private equity-backed SMEs with financing for the initial investment or acquisition by a private equity fund, as well as direct, follow-on investment to fuel further business growth. Private credit firms are similarly aligned with the active ownership model, have a similarly deep understanding of those businesses’ growth models, and a share similarly patient and flexible outlook, aligned towards driving the companies’ long-term growth.
Private credit investment is specifically tailored to the needs of a borrower company to support its growth and expansion, without significantly altering the company’s ownership structure. These and other features have helped private credit become a critical part of the wider private capital fund investment ecosystem that drives growth in the real economy. The private credit industry also includes specialist venture debt funds, which provide additional capital in venture funding rounds, help fuel fast-growing companies’ growth between funding rounds, and in some cases support fast-growing companies independently of the venture capital ecosystem.
These are all types of private company finance in which the UK has been an international leader for decades. Their growth has accelerated further in the last 15 years, as regulation and commercial factors have often made it harder for banks to lend to various types of company, especially high-growth companies and SMEs.
Interconnections with the financial system and the real economy
Private capital offers a unique form of long-term, flexible equity or debt finance paired with active engagement (ownership in the case of equity providers) and sector experience to companies with ambitious growth aspirations. Private capital funds are typically closed-ended and financed by institutional investors. They do not take deposits, do not offer investor redemptions and do not engage in maturity transformation. These structural features have helped support financial stability and productive investment across the UK during recent downturns. Academic studies show, for example, that private equity-backed companies significantly outperformed their non-private equity-backed peers during the COVID pandemic, and during the global financial crisis exhibited higher ongoing investment rates as well as an average default rate of roughly half that of comparable companies. There are a number of distinctive features of private capital that mean its interconnections with financial system and the real economy are positives for the UK:
The BVCA welcomes the opportunity to respond to the House of Lords Financial Services Regulation Committee’s inquiry into the growth of private markets and the impact of post-2008 financial reforms.
BVCA responses to specific inquiry questions:
Official and industry sources indicate tighter lending to smaller businesses by the major banks after the Global Financial Crisis (for example, the British Business Bank estimates that the share of gross UK SME lending by the UK’s “big five” banks dropped from 63% to 41% in the decade to 2024). These trends have coincided with post-crisis regulatory reforms that increased the capital intensity of certain types of bank lending, particularly long-term and SME exposures.
The UK private capital industry was large and growing before the global financial crisis. In 2007, BVCA member firms invested around £12bn in UK companies (roughly double the amount invested in the early 2000s), and companies backed by BVCA member firms employed around UK 1.2m workers. The industry’s growth trajectory continued post-financial crisis. This coincided with retrenchment by traditional lenders from some parts of the real economy inhabited by smaller companies, where standardised, risk-weighted models may restrict larger banks’ flexibility. The UK’s private capital industry (both equity and credit) has grown as an additional source of capital for businesses that need long-term, flexible finance to support investment and growth (see also our response to Q8).
Private capital plays an important role in financing the real economy (see our Report on Investment Activity 2024) and is critical to the UK government’s ambitions for economic growth, resilience and productivity. Independent analysis from EY, commissioned by the BVCA confirms the scale and economic relevance of this contribution. In 2025, there are around 13,000 UK businesses backed by private equity and venture capital, employing 2.5 million workers and generating £199 billion in GDP. This represents 7% of UK GDP, 8% of total employment and 9% of gross earnings.
While the supply specifically of private credit has increased (for example, Houlihan Lokey estimates that private credit’s share of debt provision to PE-backed UK companies rose from around 30% in 2016 to around 68% in 2023), it is not a like-for-like substitute for bank lending. It is a different model that provides a bespoke and engaged approach to lending aligned with the long-term active ownership model of private equity and venture capital. Typical private capital fund structures match the illiquidity of the underlying assets, mitigating the systemic liquidity risk targeted by the post-2008 bank reforms. This is because private capital funds are typically closed-ended and backed by long-term institutional capital, with no investor redemption rights or maturity transformation. These features limit run risk and liquidity pressures and allow private capital funds to support UK companies through economic cycles (see our responses to Q3 and Q5).
Rather than displacing the banking sector, private capital has expanded optionality and the diversity of financing channels available to UK businesses. As bank lending has become more constrained, particularly for smaller and high-growth companies operating in areas such as technology and life-sciences, private capital has helped ensure continued access to finance for UK businesses. This has supported jobs, innovation and economic growth across the UK. This, we understand, is why the British Business Bank, which aims to help SMEs make appropriate financing choices, recognises in its Business Guidance that private capital (equity and credit) are an important part of the finance toolkit available to UK businesses.
2. What interconnections exist between the UK’s banking sector and private markets? How have these interconnections changed since 2008, and how do you expect them to continue to develop?
Private capital funds and banks are distinct parts of the financial system, with different structures, business models and regulatory frameworks. While private capital funds (and firms) do not rely on banks for day-to-day functioning, there are points of connection. These interconnections reflect a developing and maturing market, where complementary strengths between banks and private capital can enhance overall resilience and investment capacity. We expect these relationships to remain stable or to deepen in measured ways that support economic investment and financial stability (see our response to Q3).
In practice, the key interconnections are:
Fund-level facilities
Banks may provide subscription line facilities to private capital funds, typically as short-term credit lines secured against the uncalled capital commitments of institutional investors in the funds. According to the Loan Market Association (LMA), subscription lines account for the vast majority of the fund finance market and are principally an administrative tool used for cash management, benefitting both private capital firms and investors. These facilities bridge the time between deal closing and capital calls. This improves deal execution and, for investors, smooths cash flows and reduces the administrative burden of responding to capital calls. The credit risk to banks is low, given that facilities are collateralised by high-quality commitments from institutional investors such as pension funds, sovereign wealth funds and insurers. The use of subscription lines is contractually limited, transparent to investors and subject to rigorous underwriting standards. Their adoption has grown with the expansion of the asset class, but the underlying risk remains limited and closely monitored.
A smaller subset of funds use NAV-based facilities, which are secured against the value of one or more underlying portfolio asset(s). These may be provided by banks or non-bank lenders. The Fund Finance Association (FFA) estimates that 80% of NAV-based facilities have been used to support ongoing investment and portfolio company growth. NAV finance remains a modest and bespoke part of the market. In 2024, S&P Global estimated the size of the market to be $150bn, equivalent to around 1% of the estimated aggregate value of private capital investments. While the market is expected to grow, transactions are characterised by restricted loan-to-value ratios (typically between 10 and 30%, and up to 60% LTV), lender due diligence and strong governance and investor oversight.
The Institutional Limited Partners Association (ILPA), the trade body for investors in private capital funds, has published detailed guidance on NAV finance and consulted private capital firms and investors when producing it. The guidance has increased understanding and transparency around the use of NAV finance and articulates shared industry expectations to assist all parties.
Financing at portfolio company level
Banks remain active providers of revolving credit facilities, working-capital lines, hedging and, in larger transactions, acquisition financing. This may occur directly, through bilateral or syndicated loans, or indirectly, by financing private credit funds that lend into the real economy. In these cases, loans are subject to due diligence and include covenants, information rights and ongoing monitoring.
Shared market infrastructure
Private capital firms, banks and institutional investors interact through shared financial infrastructure, including custodians, fund administrators, legal counsel and advisers. These operational connections support efficiency, market functioning and oversight but do not typically involve material financial exposures or systemic interdependencies.
Banks and non-banks often work alongside each other to meet different business needs (see our answer to Q1). We expect these relationships to continue to evolve in ways that support productive investment in the real economy and to remain proportionate and appropriate.
3. What are the implications of the growth in private markets, and interconnections with the wider financial services sector, for lending to the real economy and the UK’s financial stability?
The growth of private capital over the past decade has supported lending to the real economy and the UK’s capacity to finance growth. Private capital provides long-term, growth-oriented finance for companies and entrepreneurs driving innovation, transformation and scale, which are often underserved by traditional financial institutions. This includes UK-wide SMEs and businesses in sectors highlighted as important in the Government’s Industrial Strategy, such as life sciences, clean energy, defence and technology.
A defining feature is active ownership, with private capital bringing board-level and operational engagement, governance support, and long-term partnership with management teams. Public First analysis indicates that productivity at private-capital backed businesses grows around 1.1% per year faster than the wider business population, reflecting private capital-driven improvements in management practices, governance and operational performance. Recent academic research provides evidence not only of a positive impact on productivity in target firms, but also across entire industries through spillover effects. The role of private capital is therefore not to provide finance alone; it also delivers a hands-on partnership aimed at building stronger, more resilient and more productive businesses.
From a financial stability perspective, the structural features of private capital funds mitigate risks associated with systemic interlinkages or liquidity stress. Funds are typically closed-ended and funded by long-term institutional investors with no redemption rights, so do not create investor liquidity pressures. They do not engage in deposit-taking and are not dependent on short-term wholesale funding markets. Within private credit specifically, loans are typically bilateral, bespoke agreements and not exposed to volatility by being traded on public markets. Private credit exposures are usually senior secured or otherwise asset-backed, which supports more stable outcomes for lenders (ultimately a fund’s institutional investors). These features reduce the scope for sudden liquidity shocks and run dynamics that have historically propagated instability in the financial system. For these reasons, the U.S. Federal Reserve’s May 2023 Financial Stability Report noted that risks associated with investor redemptions and leverage from private credit funds “appear low”, and that “overall, the financial stability vulnerabilities posed by private credit funds appear limited.”
Where interconnections with the banking sector do exist (see our response to Q2) they have grown in step with private capital and reflect a developing market. They remain proportionate, prudently managed through collateralisation and subject to due diligence and market discipline driven by commercial incentives.
Overall, the growth in private capital has supported investment in the real economy. It has helped expand SME access to finance across the UK, improved market diversity, and reduced reliance on any single channel of intermediation. This strengthens the financial system’s capacity to support long-term investment, productivity and growth.
4. How transparent are the valuations, price discovery mechanisms, and structure of ownership of assets adopted by private markets? Does the Bank of England have sufficient visibility in non-bank finance, and what changes, if any, should be made to address this?
Private capital funds operate within an established framework of valuation, reporting, and regulatory oversight that reflects the long-term, illiquid and institutional nature of the asset class. While private capital funds do not offer real-time price discovery through secondary trading on an exchange, valuation practices are governed by formal policies, specialist committees, independent audit and institutional investor scrutiny. The internationally recognised IPEV Guidelines are widely adopted by private capital firms, providing a common fair-value framework across the industry. These safeguards, procedures and guidelines support consistency and transparency in how assets are valued, owned, and reported.
In March this year, the FCA published findings from its review of private market valuation practices, focusing on governance and oversight processes used by UK-authorised managers of private capital funds. The review highlighted positive findings, including strong valuation governance, effective use of independent committees, and robust challenge processes, particularly where model-based assumptions were used. The FCA noted widespread adoption of the IPEV Guidelines. AIFMR requires functional independence between valuation and portfolio management with written policies, committee challenge and annual external audit. Together, these findings support the view that valuation practices are well structured and subject to effective internal and external challenge.
Valuations are typically prepared quarterly on a fair-value basis. They are informed by market-based inputs, such as third-party transactions and peer ‘comparables’. This is generally by reference to a basket of comparable companies, both public market trading and private transactions which have observable valuations. Interim valuations are reviewed by fund auditors, scrutinised by valuation committees, and monitored by institutional investors, many of whom conduct their own analysis. In most private capital funds, management fees are not paid on the basis of these valuations, and so private capital firms do not generally get higher fees if they report a higher interim valuation. This approach was designed to mitigate the conflict of interest that would otherwise arise from valuation of inherently illiquid assets. Academic evidence indicates that private capital valuations generally tend to be conservative and smoothed relative to public markets. Private equity exit analysis also finds that realised sale prices are, on average, around 28% higher than valuations two quarters prior, consistent with the notion that interim valuations tend to be conservative rather than overstated (see the BVCA External Research Hub on Private Market Valuations). Interim NAVs are calculated and reported to investors, typically to assist investors with performance tracking and transparency rather than to support trading or investor liquidity.
The structure of ownership in private capital is similarly transparent. Funds are generally structured as limited partnerships or listed closed-ended investment companies, with legal and beneficial ownership clearly disclosed to investors and regulators. In the UK, private company accounts are filed at Companies House and are publicly accessible. Portfolio companies are held through ring-fenced holding vehicles with defined governance rights and control provisions. These structures are well documented, subject to audit, and support clarity of ownership, liability, and control.
Larger private capital-backed companies have been subject to increased public interest and scrutiny in the last decade. Many large UK portfolio companies fall within the scope of the Walker Guidelines which require public reporting in a manner comparable to that required of FTSE 250 companies. Adherence is independently monitored and reported annually by the Private Equity Reporting Group. In addition, private companies must comply with relevant UK corporate reporting and disclosure rules.
From a regulatory perspective, UK authorised private capital firms are already subject to a comprehensive suite of reporting and oversight obligations under AIFMR. For example, firms must submit Annex IV reports covering leverage, concentration, investor composition, and fund structure. Borrowers also benefit from the same safeguards and protections as with other finance providers, and private credit firms are regulated by the FCA and accountable to their investors in the same way as private equity and any other alternative investment fund manager. Funds are financed by long-term institutional investors, including pension schemes and insurers, which strengthens governance expectations and supports prudent lending and investment.
We support proportionate steps to improve the usefulness and coordination of regulatory data, including how existing reports and information can be aggregated and better shared across supervisory bodies. The current UK regulatory framework already delivers an appropriate level of transparency for private capital. Valuation methodologies are robust and well-governed, ownership and control are clear to investors and regulators, and risks are appropriately disclosed and monitored. Oversight should remain proportionate and grounded in a clear understanding of the differences between public and private markets, and the structural differences between banks, private capital and other parts of non-bank finance.
5. Are there systemic risks that the Bank of England should be aware of regarding non-bank financial intermediation? If so, how can these risks be mitigated?
The non-bank financial intermediation (NBFI) sector is diverse, encompassing a wide range of entities, business models and risk profiles. It is important to distinguish between those parts of the sector that engage in activities with potential systemic implications, such as maturity transformation and liquidity mismatch, and those, such as private capital funds, that are structurally designed to avoid those features and are not significantly leveraged at a fund-level. Any loss is capped at investors’ commitments to a closed-ended fund, which limits channels for broader contagion.
Private capital funds are typically closed-ended vehicles backed by long-term institutional investors. They do not take deposits, do not offer investor redemptions and do not depend on access to short-term funding markets. As such, they are not subject to run risk in the way that banks and some other non-bank entities may be. Private capital funds invest over multi-year horizons, using capital committed by pension funds, insurance companies, sovereign wealth funds and other long-term investors. This model protects funds from liquidity withdrawals during periods of market stress (see our response to Q3 above).
From a financial stability perspective, private capital funds do not exhibit the transmission channels commonly associated with systemic instability. The absence of redemption risk, reliance on long-dated committed capital, and limited mark-to-market pricing means private capital funds are unlikely to contribute to fire-sales or reinforce market downturns. These features have been recognised by international standard-setters in the regulatory frameworks that differentiate between banks, private capital and other NBFIs according to their structural differences.
Where interconnections do exist, such as through relatively modest fund-level financing or exposure to leveraged portfolio companies, these links are typically collateralised, and subject to close governance. Subscription line facilities are secured against investor commitments and used primarily for short-term cash management. NAV-based lending is a small segment of the market (equivalent to around 1% of private capital investments (see our response to Q2 above)), typically conservatively structured with low loan-to-value ratios and ring-fenced security arrangements. At the portfolio level, private capital-backed companies may use leverage, supported by banks or private credit funds, but this debt is generally non-recourse to the fund and managed within a long-term investment plan that incorporates operational and governance support from the private capital firm (see the BVCA External Research Hub on Leverage for more information). In addition, private credit lenders use early-intervention tools that reduce the likelihood of disorderly outcomes, including reporting covenants and inspection rights, enhanced monitoring and watchlists, negotiated forbearance, temporary PIK arrangements, and, where appropriate, equity-cure mechanisms.
Private capital funds are not a source of system risk from leverage, maturity transformation, or exposure to rapid redemption cycles, because their structural design mitigates these features. Supervisory approaches should remain targeted and proportionate, based on a clear understanding of the relevant structures, incentives and transmission channels, rather than applying uniform requirements to firms of different sizes and business models.
As referenced above, UK-authorised private capital firms are already subject to robust regulatory, reporting and oversight requirements. These tools provide regulators with visibility over market developments and risk dynamics in the sector (see our response to Q4 above). In our view, the structural safeguards of private capital funds mean they contribute positively to financial stability by providing long-term finance to UK SMEs through vehicles specifically designed for this type of commitment. We support continued engagement between the private capital industry and UK authorities to ensure that supervisory frameworks evolve in line with market developments.
6. How has demand for finance from businesses changed since 2008, and how do you expect this will develop?
While headline levels of business borrowing have moved with macroeconomic cycles, underlying demand for long-term, flexible capital has grown, particularly among SMEs, scale-ups, and businesses operating in innovation-dependent or capital-intensive sectors. Private capital firms undertake extensive due diligence and invest or lend only to a small proportion of the businesses they assess, which supports investment and credit quality.
Traditional bank lending continues to play an important role in serving many UK businesses. At the same time, there has been a clear shift in demand toward finance that supports business growth, transformation and resilience. This reflects changes in the banking landscape after 2008, and a greater recognition among business owners of a wider range of options alongside traditional bank lending, and the value of capital that comes with expertise, strategic support and long-term alignment.
Businesses backed by private equity, venture capital and private credit have demonstrated resilience during recent periods of market disruption, including the COVID-19 pandemic and the inflationary and interest rate shocks that followed. Default rates have remained low, even through a sustained period of higher interest rates. Recent studies have found that private capital-backed businesses typically outperformed their peers during the pandemic, in part because private capital firms brought know-how and networks, providing better access to capital markets and lines of credit. This experience has reinforced demand from business owners for capital that combines investment or lending with hands-on support (see the BVCA External Research Hub on Business Resilience).
The availability of patient capital, combined with operational expertise, engaged governance and board level support has enabled these businesses to adapt to changing conditions, maintain investment in skills and R&D, and access follow-on funding when needed. This has reinforced demand from business owners and management teams for finance that goes beyond conventional debt or passive equity (see our response to Q3 above).
The broader economic impact of this model is set out in the BVCA and EY’s recent report, The Economic Contribution of UK Private Equity and Venture Capital in 2025. It found that private equity and venture capital-backed companies support more than 2.5 million jobs and generate £199 billion or 7% of GDP across the UK economy. These outcomes reflect not only the amount of capital deployed, but also the embedded and sustained nature of support provided by private capital firms over the long term.
Looking ahead, we expect demand for private capital to remain strong and continue to grow. Businesses face significant investment needs in areas such as defence, life-sciences, the energy transition, digital infrastructure, AI and innovation, which require risk-tolerant, long-duration capital and trusted partnerships.
We also expect growing appetite from UK institutional investors, including pension schemes, to allocate capital to productive investment in UK businesses. This creates an opportunity to diversify and enhance UK pension savers’ investments, strengthen the UK’s investment ecosystem, increase domestic capital flows into high-growth and strategically important sectors, and support sustainable economic growth across all nations and regions of the UK (see our response to Q10 below).
7. How has the regulation of bank capital and liquidity requirements affected the ability and willingness of banks to provide lending to the real economy? Are there disincentives in regulation that inhibit businesses’ ability and willingness to access finance through banks?
From the perspective of the businesses our members support, access to traditional bank lending has become more constrained in important segments since the post-crisis reforms. This is especially true for SMEs, high-growth and asset-light companies. These businesses often sit less comfortably within standardised, collateral-focused credit models. These are the types of businesses that are critical to long-term economic growth and competitiveness, but also least well-served by traditional lenders.
Private capital has responded by providing long-term, flexible finance that is aligned to business growth and supported by active ownership, governance and operational expertise. That support has helped companies to invest, transform and scale when conventional credit is harder to access (see our response to Q1 above).
We recognise that the cumulative impact of regulation can influence the diversity of finance available to the real economy. This Committee’s June 2025 report, Growing pains: clarity and culture change required, highlighted concerns about a culture of risk aversion and unintended disincentives within the regulatory environment. Those themes underline the importance of ensuring the overall framework enables a competitive and diverse financing ecosystem in which bank, private capital and other non-bank channels can play to their strengths. In that context, it is essential that the UK’s overall regulatory environment recognises the role of private capital alongside traditional lenders in delivering investment, innovation and growth (see our response to Q10 below).
8. To what extent do private markets have a competitive advantage over the banking sector to provide finance to businesses; if so, why? To what extent are any competitive advantages regulatory in nature?
Private capital does not compete with banks on a like-for-like basis. Rather, it provides a financing option that is suited to certain types of businesses and investment needs. Where private capital is particularly well suited to provide growth financing for UK companies, that suitability stems primarily from the model, not from regulation (see our response to Q1 above).
Private capital funds invest over long-term horizons, often with capacity for follow-on investments. BVCA analysis shows that 57% of UK businesses backed by private capital in 2024 received follow-on funding. Businesses value strategic partnership as well as capital provision, with private equity and venture capital firms bringing active ownership, board-level engagement and sector expertise. Private credit can be tailored to the borrower’s needs and execution can be faster and more certain, which is valuable when finance is needed for acquisitions, turnarounds and other complex transactions. This reflects a direct, relationship-based model with the same deal team throughout the loan or investment lifecycle, which underpins tailored structures and timely execution (see our response to Q6 above).
Private capital has also demonstrated resilience through market cycles. During the COVID-19 pandemic and recent inflationary and interest rate shocks, private capital firms were able to draw on networks, expertise and resources, inject follow-on funding and maintain strategic continuity in portfolio companies. This capacity to invest through cycles reflects the structure of private capital vehicles: closed-ended, long-term, and backed by institutional investors.
Where private capital has become more prominent in real-economy financing, part of that reflects the post-crisis prudential environment that has encouraged banks to focus on lower-risk, more liquid assets. It is our view that the larger drivers, however, are the desire for aligned, long-term partners and the suitability of private capital structures for equity investment and more flexible credit solutions. Private capital has not displaced banks but stepped into areas that are now less well served by traditional lenders.
Private capital is regulated to high standards, in line with its structure and risk profile. UK-authorised fund managers must comply with the AIFMR, anti-money laundering and beneficial ownership transparency requirements, investor disclosure rules, and for listed vehicles, the UK Listing Rules and Companies Act. These regimes provide meaningful oversight and reporting to investors and regulators without importing bank-style requirements designed for deposit-takers required to service on-demand liquidity (see our response to Q4 above).
To maintain the UK’s leading position as a global hub for private capital activity and investment, the regulatory framework must remain proportionate and activity based, recognising that private capital, banks and other non-banks are different models that together broaden the investment and financing options available to UK businesses.
9. What, if any, reforms to bank capital regulation could be implemented to increase the risk appetite of the banking sector to provide lending to the real economy?
We recognise that the current framework on capital adequacy, risk-weighted assets and liquidity has contributed to a shift in business model and risk appetite, and a decline in bank lending to SMEs, early-stage companies and sectors that require longer-term commitments.
Any review of banking regulation should consider the broader objective of ensuring that UK businesses can access the finance they need to invest, scale and compete, while preserving financial stability. We support approaches that are proportionate and recognise the differences between business models and structures and risk profiles. It is important to consider cumulative effects across rules and the interaction between prudential standards and real economy outcomes, particularly for productive investment (see our response to Q7 above).
This context also underlines the value of a diverse financing ecosystem. Private capital provides long-term, flexible finance to businesses that may not fit standardised lending criteria. A regulatory environment that enables both bank and non-bank channels to play to their strengths will best support the UK’s growth and competitiveness.
We would welcome continued engagement between banks, regulators, private capital and policymakers to ensure that the overall financial system remains diverse, proportionate and responsive to the needs of the real economy.
10. What can the UK learn from other jurisdictions, in particular the US and the EU?
There are clear lessons from the US on how to support private capital and international competitiveness. In the US, deep and consistent allocations from pension funds, insurers and endowments have helped build large, long-term pools of capital. A policy environment that maintains a clear distinction between professional and retail markets, prioritises disclosure and outcomes over prescription, and offers regulatory predictability has allowed private capital firms to invest at scale. This has supported leading ecosystems in venture capital, private equity and private credit, alongside capital markets that provide credible pathways from private to public financing (and vice versa).
As set out in our response to the FCA’s Call for Input on the future regulation of alternative fund managers, the UK’s regulatory regime must evolve if it is to remain internationally competitive. As other jurisdictions modernise their frameworks to better accommodate and attract private capital, the UK must act with similar ambition by making the regime more proportionate, streamlining supervisory processes, and ensuring prudential, conduct and reporting requirements are calibrated to private capital specific structures and risks. The UK should also focus on unlocking more domestic institutional capital, particularly from defined contribution pension schemes, by giving trustees clear routes to invest in long-term productive assets with appropriate safeguards and practical guidance (see our response to Q6 above).
Capital markets reform is important too. Improving listing flexibility, strengthening the investor base, and enhancing secondary-market liquidity would help UK companies raise scale capital at home and move more easily between private and public markets. Taken together, these steps would align the UK with international best practice with proportionate, outcomes-focused regulation, reliable domestic capital and efficient market infrastructure that supports investment and growth in UK businesses.
More broadly, the UK has recently established trade agreements with the US and the EU. It is essential that Government considers how each agreement supports the UK’s position as a global hub for private capital investment. They offer an opportunity to support regulatory alignment and send a message that the UK is open for business, committed to innovation, and ready to lead in the global competition for private capital.
18 September 2025
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