Barclays Faces PRA Review Over Private-Credit Derivative Accounting

On October 19, the Financial Times reported that the Bank of England’s Prudential Regulation Authority (PRA) has opened a review of Barclays PLC’s handling of total-return swaps used to finance loans to private-credit funds. The review follows an insider complaint that the swaps were recorded in Barclays’ trading book rather than its banking book, a classification that would lower the capital the bank must hold against the underlying illiquid loans. Barclays traders argue that back-to-back hedges render the exposure “traded” and therefore eligible for the lighter capital regime.

Bank of England Opens Inquiry Into Barclays' Private Credit Bookkeeping, FT Says — BigGo Finance The Times of LondonBank of England Is Examining Whether Barclays Traders Misrepresented Private Credit Exposures, FT Reported:

Private-credit firms raise capital from investors and lend directly to companies, operating outside the traditional deposit-based banking system. The sector has grown to an estimated $3.5 trillion of loans worldwide, according to the Alternative Credit Council. Because private-credit lenders are less regulated, major banks have increasingly provided financing through derivative structures such as total-return swaps. Regulators have warned that intertwining banks with this “shadow-banking” market could amplify systemic risk, especially after defaults at firms such as Tricolor, First Brands, and the mortgage lender Market Financial Solutions (MFS). Barclays absorbed a £228 million loss from MFS’s collapse and earlier took losses on Tricolor’s failure.

The GuardianBank of England Is Examining Whether Barclays Traders Misrepresented Private Credit Exposures, FT Reported: The Times of London

• Barclays’ total exposure to the private-credit sector: ? £15 billion (Barclays).

The Guardian

• Derivatives linked to that exposure: ? £300 million (Barclays).

The Guardian

• Reported loss from MFS insolvency: £228 million (Barclays).

The Times of London

• Global private-credit loan market value: $3.5 trillion (Alternative Credit Council).

The Times of London

Barclays maintains that its accounting for total-return swaps complies with both accounting standards and regulatory capital rules. A spokesperson said the bank’s conditions “were met and supported by appropriate governance internally and by external advisers.” The bank added that the majority of its private-credit exposure is held in the banking book, where higher capital requirements apply.

The Times of London

The PRA has not commented publicly on the investigation. The Bank of England confirmed that Katharine Braddick, the PRA chief who previously served as Barclays’ head of strategic policy, is recused from any matters involving the bank until the end of 2026. The Bank of England declined further comment.

The Guardian

Sources differ on the precise magnitude of the swap positions. Barclays disclosed £300 million of derivatives tied to its private-credit book, while other reports reference “billions of dollars” of exposure built through similar structures. The Financial Times did not disclose the exact size of the positions under review, and the PRA has not released details of the complaint, leaving any potential capital shortfall unquantified.

Bank of England Is Examining Whether Barclays Traders Misrepresented Private Credit Exposures, FT Reported:

• “Under capital rules, we are required to meet certain conditions to classify treatment as trading book. Those conditions were met and supported by appropriate governance internally and by external advisers.” — Morgan, Barclays spokeswoman

The Times of London

Barclays is scheduled to publish its next set of financial results later this week, which may shed additional light on the bank’s private-credit exposure and capital positioning. The PRA’s review is ongoing, and regulators have indicated that further scrutiny of derivative accounting practices across the banking sector could follow.

The Guardian