Bank of England probes Barclays over private credit risk reporting

The Bank of England’s Prudential Regulation Authority (PRA) is investigating whether Barclays traders misrepresented exposures to illiquid private credit loans. The probe follows an insider complaint received earlier this year regarding how the bank records derivatives used to finance these loans.

The investigation focuses on the use of total return swaps. Allegations suggest Barclays may have classified these derivatives in its trading book rather than its banking book. This distinction is critical because trading-book classification can result in lower capital requirements, potentially understating the actual risk of the underlying illiquid assets.

Barclays traders have reportedly argued that the exposure qualifies as a traded position because it is hedged through matching swaps with other counterparties. While the allegations have not been proven and no formal regulatory finding has been announced, the scrutiny highlights growing concerns regarding the interconnectedness between major banks and the $2 trillion private credit market.