The Prudential Regulation Authority, the Bank of England’s regulatory division, has initiated an examination into Barclays’ accounting practices related to financial instruments supporting private credit lending. The investigation commenced this year after an internal whistleblower raised concerns regarding the categorization of total return swaps—derivatives that track underlying asset performance—according to reporting by the Financial Times.
The key issue centers on whether Barclays properly classified these financial instruments within its portfolio structure. Regulators allegedly found that the derivatives may have been recorded in categories suggesting lower risk levels than the instruments actually carried. Such misclassification could have implications for capital adequacy, as banks must maintain sufficient reserves relative to their risk exposure. The practice could also have resulted in inflated profit figures if the bank was not holding appropriate capital buffers against potential losses.
Barclays maintains that its treatment of the derivatives aligns with applicable accounting standards and regulatory capital requirements. The bank stated its actions followed established protocols for asset classification, supported by internal governance procedures and external advisory review. According to the bank’s disclosure, total private credit exposure reaches approximately £15 billion, with the relevant derivatives representing £300 million of that amount.
The investigation carries particular significance given personnel considerations at the regulator. The newly appointed PRA head, Katharine Braddick, previously worked at Barclays for six years in strategic policy roles. Accordingly, the Bank of England stated that Braddick has recused herself from all Barclays-related matters through the end of 2026. The timing is notable as Barclays prepares to announce recent financial results later this week, and equity market reaction included a 3.5 percent decline in share value.
The situation reflects broader industry concerns about private credit practices. The sector has faced scrutiny following several notable failures, including two automotive companies and a mortgage lender, amid fraud allegations. Regulators have expressed concern that traditional banks’ growing interconnection with private credit operations could present systemic risks if lending standards prove inadequate.
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