# Bank of England Reviews Barclays Private Credit Derivative Accounting Regulators investigate whether Barclays misclassified derivative contracts to artificially inflate its profitability metrics. - **Source:** [Business | The Guardian](https://www.theguardian.com/uk/business) - **Published:** 2026-10-19 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/7a628ec0-6ffa-499c-8f23-6482851fe1bb ## Regulatory Scrutiny Initiated The Prudential Regulation Authority, the regulatory arm of the Bank of England, launched a formal review into Barclays this year. This investigation follows internal concerns regarding how the bank logs derivative contracts linked to private credit. Regulators are specifically examining whether these financial instruments were incorrectly categorized to misrepresent risk profiles. ## Total Return Swap Misclassification The core issue involves total return swaps used to finance loans issued to private credit firms. Reports suggest these derivatives were logged in incorrect portfolios, potentially masking their true risk level. By misclassifying these assets, the bank may have avoided holding sufficient capital to cover potential losses, thereby artificially boosting reported profitability. ## Exposure and Financial Impact Barclays maintains that its total exposure to the private credit sector is approximately £15 billion, with the specific derivatives in question accounting for £300 million of that total. Despite these figures, the bank's shares dropped 3.5% on Monday, marking it as the second-biggest faller on the FTSE 100 index amid broader market volatility. ## Internal Governance Defense Barclays asserts that its treatment of total return swaps remains consistent with all accounting and regulatory capital requirements. The bank claims its internal governance processes, supported by external advisers, validated these decisions. CEO CS Venkatakrishnan previously insisted that the firm maintains robust controls to manage its exposure to the private credit industry. ## Regulatory Conflict of Interest The investigation presents a complex situation for Katharine Braddick, the new head of the Prudential Regulation Authority. Braddick previously served as Barclays' head of strategic policy for six years. To ensure impartiality, the Bank of England confirmed that Braddick is recused from all matters relating to Barclays until the end of 2026. ## Private Credit Sector Risks Private credit firms operate as a core component of the shadow banking sector, utilizing investor capital rather than traditional deposits. Because they face less stringent regulation, critics worry that lending standards have deteriorated. Traditional banks like Barclays are increasingly intertwined with these players, raising concerns about systemic instability if defaults occur within the industry. ## Historical Loss Context Barclays has previously faced significant financial hits from the private credit sector. The bank suffered losses following the collapse of US automotive companies Tricolor and First Brands, both linked to fraud allegations. Additionally, Barclays took a £228 million hit after the February collapse of the mortgage lender Market Financial Solutions, further heightening regulatory caution. ## Systemic Financial Implications The review highlights growing anxieties regarding the interconnectedness between traditional banking and the booming private credit market. As regulators tighten oversight, the outcome of this investigation could force banks to re-evaluate their capital buffers. This case serves as a critical test for how authorities manage risks within opaque, high-growth financial derivative portfolios. ## Sources covering this story - https://www.theguardian.com/business/2026/oct/19/bank-of-england-said-to-be-reviewing-barclays-handling-of-private-credit-loans — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._