Partner Rachael Gregory discusses the practical takeaways for the private credit industry following the administration of Market Financial Solutions, in Thomson Reuters Regulatory Intelligence.

Rachael’s article was published in Thomson Reuters Regulatory Intelligence, 15 July 2026.

In the aftermath of the financial crisis, stricter regulations in the banking sector caused the private credit industry to balloon. The industry is worth in excess of $2 trillion and its value has almost doubled in the last six years.

That growth has been driven by a combination of factors: banks retreating from certain forms of lending because of post-crisis capital requirements, institutional investors searching for yield, and borrowers seeking faster, more flexible sources of finance. Private credit has therefore moved from being a niche alternative asset class to a central source of funding for companies, property borrowers and specialist lenders. Its expansion has also created a more complex web of relationships between banks, funds, servicers, originators and investors, making it harder to identify where risk ultimately sits.

However, the administration of Market Financial Solutions (“MFS) in February 2026 has raised questions regarding the future regulation of the private credit industry.

MFS entered administration in February 2026 amid allegations of fraud, significant double pledging of assets, and a collateral shortfall that was estimated at £1.3 billion. Shortly after that, the Financial Conduct Authority (FCA) announced that it had commenced an enforcement investigation.

In total, an estimated £2bn of financing was extended to MFS by various lenders: Barclays was Identified as the biggest, with up to £600 million in exposure; Atlas SP Partners (Apollo Global Management) had roughly £400 million in exposure; Wells Fargo provided a £143 million loan to an MFS-associated property portfolio last November, when Barclays began freezing accounts; and Jefferies had an estimated £100 million in exposure. Other identified lenders include: Banco Santander, Castlelake, and hedge fund, Elliott Management.

The fact that MFS was not authorised for broader FCA regulation is significant. MFS was registered as an Annex 1 business and supervised only for compliance with the Money Laundering Regulations, rather than subject to the fuller conduct and prudential regime that applies to authorised firms. That limited perimeter is likely to become one of the central issues in any regulatory post-mortem: if a lender can borrow very substantial sums from sophisticated institutions and participate in a market of systemic importance while remaining outside wider supervision, policymakers may ask whether the existing regulatory boundary is still fit for purpose.

A key allegation levied against MFS is double pledging of the same property assets as collateral for multiple loans from different lenders. Barclays allege that money was “fraudulently circulated” around the network of MFS companies “on a massive scale”.

Double pledging is particularly difficult to detect in fast-moving asset-backed lending structures. Where warehouse facilities are secured against pools of loans or receivables, lenders often rely on representations, loan tapes, periodic reporting and contractual covenants. Those controls may be adequate in ordinary circumstances, but they can be vulnerable if the underlying data is inaccurate, if security has not been perfected, or if there is no reliable, real-time mechanism for confirming that the same asset has not been pledged elsewhere. The MFS collapse therefore raises questions not only about alleged misconduct, but also about the operational resilience of the wider market.

MFS is not an isolated example. As private credit continues to expand such collapses are happening with greater frequency across the burgeoning asset-backed lending market.

At the end of last year, there were two comparable failures in the US: First Brands Group, an auto parts maker, and Tricolor, a subprime auto lender. The consecutive multi-billion-dollar collapses of this duo shocked the private credit market, prompting Jamie Dimon, the formidable CEO of JPMorgan Chase, to speculate that further “hidden cockroaches” were likely to emerge. The parallel with those US failures is important because it suggests that the issue is not confined to one borrower, one jurisdiction or one lending sector. In each case, the immediate concern was not simply credit risk in the conventional sense, but verification risk: whether lenders and investors could rely on the existence, value and exclusivity of the collateral supporting their exposure. For regulators, that distinction matters. Traditional credit losses are part of market discipline; repeated failures in collateral verification may point to weaknesses in market infrastructure and governance.

Private credit is largely provided through closed-end funds which do not face the same regulation or supervision as banks. Many lenders are regulated with the FCA only for the purposes of anti-money laundering legislation with little other oversight over their lending activities. The failures have called into question the extent to which more regulation is needed. This distinction is likely to shape the regulatory debate. A heavy-handed response that seeks to regulate all private credit lending like banking would risk undermining one of the sector’s principal advantages: the ability to provide bespoke finance quickly where banks are unwilling or unable to lend. However, a purely laissez-faire approach may be increasingly difficult to defend where private credit structures are large, interconnected with regulated banks, and capable of transmitting losses across multiple institutions. The more likely direction is targeted intervention: enhanced due diligence expectations, improved collateral monitoring, stronger governance around valuation and conflicts, and clearer accountability for firms that originate or service loans funded by institutional capital.

Despite the failures, the direction of travel in the UK does not appear to be a simple move towards more prescriptive regulation. In some respects, the trend remains away from elements of the EU-derived regime, particularly for smaller fund managers. At the same time, the FCA has conducted a multi-firm review of private market valuation practices, published examples of good practice and set out its expectations. The FCA also appears to be increasing its focus on anti-money laundering and know-your-client compliance, as well as on Consumer Duty issues such as transparency around fees and exit strategies.

The FCA’s private market valuation review is relevant in this context. Although valuation is not the same as collateral verification, both depend on robust governance, independence, documentation and transparency. The FCA has already indicated that firms should improve the identification and management of conflicts of interest, maintain clear records of valuation decisions, and ensure that valuation processes are sufficiently independent from deal teams. Those same principles could be extended to asset-backed lending controls, particularly where a lender’s financial performance, management fees or access to future funding depends on the reported quality of the underlying assets.

The implementation of an intensified KYC regime, for example, could undermine a fundamental pillar of private capital’s business model: providing quick decisions through a highly agile, nimble lending service might be subject to delay.
For market participants, the immediate lesson is practical rather than theoretical. Lenders will need to revisit warehouse covenants, audit rights, data integrity checks, perfection of security, concentration limits, reporting triggers and access to underlying borrower information. Investors in private credit funds are also likely to ask more searching questions about operational due diligence: how collateral is verified, how frequently it is tested, who performs those checks, what happens when discrepancies arise, and whether independent third parties are involved.

The MFS administration may therefore prove to be a catalyst rather than an outlier. It is unlikely to end the growth of private credit, which remains an important source of finance for borrowers and an attractive asset class for investors. But it may accelerate a shift from a market built primarily on speed, flexibility and relationship lending towards one in which documentary discipline, data transparency and control infrastructure are equally important. The regulatory challenge will be to raise standards without removing the commercial features that made private credit valuable in the first place.