Bank of England probes Barclays over private credit risk classification, FT reports

Regulator examining whether total return swaps let bank cut capital requirements

By LineZotpaper

Published19 October 2026

Read Time2 min

The Bank of England's Prudential Regulation Authority is investigating whether Barclays traders misrepresented illiquid private credit loans as tradeable instruments to reduce the bank's regulatory capital requirements, following a complaint lodged earlier this year, the Financial Times reported on Monday.

The Financial Times, citing people familiar with the matter, reported that the Bank of England's Prudential Regulation Authority (PRA) received a complaint concerning Barclays' classification of derivatives linked to private credit loans. The complaint focuses on total return swaps, arrangements that allow banks to finance loans for private credit funds while transferring the economic performance of those loans to clients in exchange for a fee.

The classification of assets as trading book or banking book positions matters because it determines how much capital a bank must hold against potential losses. According to the FT, Barclays traders argued that back-to-back swaps hedging their exposure made the positions tradeable, despite the underlying loans being illiquid.

The PRA has previously warned banks against repackaging illiquid assets as tradeable instruments to reduce capital requirements. Barclays told the FT that it takes its regulatory obligations seriously but does not comment on interactions with regulators.

The investigation comes amid growing regulatory concern about risks in the $2 trillion private credit market, where non-bank lenders provide direct financing to companies. The report does not indicate whether the PRA has reached any conclusions or opened formal enforcement proceedings.

Analysis

Why This Matters

The outcome could determine whether Barclays must hold significantly more capital against its private credit exposure.
A finding against the bank may prompt a broader industry reassessment of how similar positions are booked.
The probe adds to regulatory attention on the fast-growing $2 trillion private credit market.

Background

Banks are required to hold capital against potential losses, and the amount depends on how an asset is classified. Private credit, where funds lend directly to companies outside the traditional banking system, has grown rapidly in recent years. Banks commonly support such funds with financing arrangements, including total return swaps, in which the bank funds a loan while the client takes on its economic performance. The PRA has previously warned banks against repackaging illiquid assets as tradeable instruments to free up capital.

Key Perspectives

Bank of England/PRA: The regulator received a complaint and is examining whether Barclays' classification of the swaps improperly reduced its capital requirements. It has previously cautioned banks about packaging illiquid assets as tradeable products. Barclays: The bank says it takes its regulatory obligations seriously but does not comment on interactions with regulators. Its traders contended that back-to-back hedging swaps made the positions tradeable despite the nature of the underlying loans. Private credit industry: The investigation underscores broader concerns about risk in the private credit market, and changes to how banks classify such exposures could affect the cost and availability of financing for private credit funds.

What to Watch

Whether the PRA escalates the probe into formal enforcement action, fines, or demands for higher capital.
How UK regulators treat total return swaps linked to illiquid loans in future capital rule decisions.
Whether other banks active in private credit financing face similar scrutiny or adjust their own classifications.

Sources

BoE probes Barclays’ handling of private credit risks, FT reports · Yahoo Finance

Checked

11 claims in this story checked against 1 source: 10 supported.

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SupportedBank of England probes Barclays over private credit risk classification, FT reportsYahoo Finance: “BoE probes Barclays’ handling of private credit risks, FT reports.”
SupportedRegulator examining whether total return swaps let bank cut capital requirementsYahoo Finance: “The Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to reduce the bank's regulatory capital requirements”
SupportedThe Bank of England's Prudential Regulation Authority is investigating whether Barclays traders misrepresented illiquid private credit loans as tradeable instruments to reduce the bank's regulatory capital requirements, following a complaint lodged earlier this year, the Financial Times reported on Monday.Yahoo Finance: “The Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to reduce the bank's regulatory capital requirements, the Financial Times reported on Monday, citing people familiar with the matter. The central bank's Prudential Regulation Authority received a complaint earlier this year concerning Barclays' classification of derivatives linked to private credit loans”
SupportedThe Financial Times, citing people familiar with the matter, reported that the Bank of England's Prudential Regulation Authority (PRA) received a complaint concerning Barclays' classification of derivatives linked to private credit loans.Yahoo Finance: “The central bank's Prudential Regulation Authority received a complaint earlier this year concerning Barclays' classification of derivatives linked to private credit loans, according to the report”
SupportedThe complaint focuses on total return swaps, arrangements that allow banks to finance loans for private credit funds while transferring the economic performance of those loans to clients in exchange for a fee.Yahoo Finance: “The complaint focused on total return swaps, which allow banks to finance loans for private credit funds while transferring their economic performance to clients in exchange for a fee, the report said.”
SupportedThe classification of assets as trading book or banking book positions matters because it determines how much capital a bank must hold against potential losses.Yahoo Finance: “The classification of assets as trading or banking book positions affects the capital banks must hold against potential losses.”
SupportedAccording to the FT, Barclays traders argued that back-to-back swaps hedging their exposure made the positions tradeable, despite the underlying loans being illiquid.Yahoo Finance: “Barclays traders argued that back-to-back swaps hedging their exposure made the positions tradable, despite the underlying loans being illiquid, the FT reported.”
SupportedThe PRA has previously warned banks against repackaging illiquid assets as tradeable instruments to reduce capital requirements.Yahoo Finance: “The PRA has previously warned banks against repackaging illiquid assets as tradeable instruments to reduce capital requirements.”
SupportedBarclays told the FT that it takes its regulatory obligations seriously but does not comment on interactions with regulators.Yahoo Finance: “Barclays said it takes its regulatory obligations seriously but does not comment on interactions with regulators, according to the report.”
Partly supportedThe investigation comes amid growing regulatory concern about risks in the $2 trillion private credit market, where non-bank lenders provide direct financing to companies.Yahoo Finance: “The investigation comes amid growing regulatory concerns over risks in the $2 trillion private credit market.”
SupportedThe report does not indicate whether the PRA has reached any conclusions or opened formal enforcement proceedings.Yahoo Finance