The Bank of England is examining allegations that Barclays traders may have understated the risk of illiquid private-credit exposures by classifying related derivatives in the bank’s trading book, according to a Financial Times report cited by Reuters. The Prudential Regulation Authority received a complaint from an insider earlier this year about total return swaps used to finance private-credit loans. Barclays says it takes its regulatory obligations seriously and argues that the positions were hedged through matching swaps.
The dispute is about how risk is classified
Banks hold different amounts of capital depending on the risk and liquidity of assets. Positions in the trading book are generally assumed to be more actively traded and may be treated differently from long-term banking-book exposures.
If an illiquid loan is effectively made to look more tradable through a derivative structure, regulators may question whether capital requirements are appropriate.
Total return swaps are at the center
A total return swap allows one party to receive the economic return of an asset without owning it directly. Banks can use these instruments to finance clients or transfer market exposure.
The complexity of the structure makes accurate risk classification especially important.
Private credit has grown rapidly
Private-credit funds lend directly to companies outside traditional public bond and syndicated loan markets. The sector has expanded rapidly as institutional investors seek higher yields.
Banks still play a major role by providing leverage, derivatives and other financing to private-credit funds.
Regulators worry about hidden connections
One concern is that risk believed to be outside the banking system can flow back to banks through financing arrangements. If private-credit funds suffer losses, banks may still be exposed through credit lines or derivatives.
That is why regulators are examining the connections more closely.
Barclays says the positions were hedged
The bank’s reported argument is that matching swaps with other counterparties made the positions effectively traded and reduced directional risk.
Regulators may still examine liquidity and counterparty risk even when market exposure is hedged.
Shares fell after the report
Barclays stock dropped around 2% to 3% in London trading after the report emerged. The reaction reflects uncertainty about potential capital, compliance or reputational consequences.
No formal finding of wrongdoing has been announced.
The issue comes at a sensitive time
Global regulators are already focused on private markets because their rapid growth has outpaced some traditional reporting frameworks.
A high-profile review involving a major bank could lead to tighter guidance for the broader sector.
Capital treatment can have major economic consequences
If regulators require banks to hold more capital against private-credit financing, the business may become more expensive. Banks could respond by raising prices or reducing exposure.
That would affect funds and companies that increasingly rely on private lending.
Transparency is the broader question
Public bond and loan markets provide relatively standardized pricing and disclosure. Private credit is less transparent, making it harder for regulators and investors to assess system-wide leverage.
Derivative structures can add another layer of complexity.
The review is not a final judgment
The Bank of England has not publicly concluded that Barclays broke rules. The current scrutiny centers on allegations and the bank’s treatment of specific positions.
The outcome will be closely watched because it could influence how other banks account for similar private-credit exposures.
Sources
- Reuters, Oct. 19, 2026
- Financial Times reporting cited by Reuters
