BoE looks into claim Barclays private credit exposure misrepresented, FT reports

BoE Probes Barclays for Alleged Misrepresentation of Private Credit Exposure

Bank of England's Investigation into Barclays' Private Credit Practices

Background of the Allegations

Oct 19 (Reuters) - The Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to understate their risk after an insider at the British bank raised concerns, the Financial Times reported on Monday.

The report, which cited people familiar with the matter, said that the Prudential Regulation Authority received a complaint earlier this year about how Barclays was recording derivatives used to finance private credit loans.

Regulatory Response and Barclays' Statement

The BoE did not immediately respond to a request for comment on the report.

The complaint centred on Barclays’ allocation of total return swaps referencing illiquid private credit loans to its trading book, the FT report said, without disclosing an amount for it. 

Market Impact

Barclays shares were down 2.6% to 421.4 pence at 0750 GMT on Monday, while the FTSE 100 index was 0.9% lower.

"Barclays takes seriously its regulatory obligations in markets where it operates," the bank said in an emailed statement to Reuters. It declined to comment further on its interactions with the regulator.

Details of the Complaint

The FT said the complaint also alleged that the way Barclays handled the deals was in breach of the PRA's rules, which restrict banks from assigning derivatives backed by illiquid collateral to their trading book, unless they can supply enough evidence to justify the treatment.

Implications for Risk Management

The regulatory concern is that classifying derivatives linked to illiquid loans as easier-to-trade investments could understate the risk of the underlying exposure and reduce the amount of money required to be set aside for potential losses.

The FT report said Barclays traders argued the exposure should be treated as a traded position because it was hedged through a matching swap with another counterparty, despite being linked to illiquid private credit loans.  

Reporting Credits

(Reporting by Yamini Kalia in Bengaluru; Editing by Sonia Cheema, Janane Venkatraman and Alexander Smith)