Partner Rachael Gregory discusses the implications of the FCA’s enforcement investigation into Market Financial Solutions, which entered administration earlier this year amid allegations of fraud, in Global Relay.

Rachael’s article was published in Global Relay, 10 May 2026.

Given the level of publicity following Market Financial Solutions (MFS) entering administration in February amid allegations of fraud, an enforcement investigation by the Financial Conduct Authority into the Mayfair-based mortgage lender was perhaps inevitable.

MFS has been accused of double pledging – using the same property assets as collateral for multiple loans from different lenders – allegedly resulting in a huge shortfall. In total, around £2 billion of financing was extended to MFS by lenders including Barclays, Jefferies and Atlas SP Partners, the structured credit arm of Apollo. According to Barclays, money appears to have been “fraudulently circulated” around the MFS network of companies “on a massive scale”.

A £1.3 billion worldwide asset-freezing order was granted against MFS founder and chief executive Paresh Raja in March 2026. Orders were granted to creditors from courts in London and Dubai, following an application from insolvency practitioners at AlixPartners appointed by creditors.

So, what does this mean for the largely unregulated private credit sector, and what steps might UK regulators take in preventing negligence, mismanagement and potential fraud?

The years since 2008 have seen the explosion of private credit across the United States and Europe. The stricter banking regulations that followed the global financial crisis in 2008-09 have meant UK banks no longer have the ability or appetite to service numerous categories of the lending market. The void was swiftly filled by private capital, offering investors higher yields than public markets and driven by the challenging housing market in the UK, particularly at the high end of the market following the Ukraine war and interest rate rises.

However, across the booming market for asset-backed lending, MFS is not an isolated example. As private credit has continued to expand with current estimates around $3 trillion in assets under management globally, such collapses are happening with greater frequency. Comparable recent failures in the US, such as First Brands and Tricolor, caused Jamie Dimon, the CEO of JPMorgan Chase, to warn back in October that more “cockroaches” could emerge in the private credit sector. The collapses raise serious questions about the effectiveness of existing regulation and oversight of the sector.

Compared to banks, private credit is largely provided through closed-end funds which do not face the same regulation or supervision as banks.  Accordingly the private credit sector has enjoyed relatively low levels of red tape and regulation. Many lenders are regulated with the FCA solely for the purposes of anti-money laundering with little other oversight over their lending activities. The fallout from MSF has called sharply into the question the extent to which the existing regulation has proved effective. According to the Financial Times, in 2024 the FCA ordered law firm DWF to examine whether MFS’ anti money laundering controls were up to scratch. DWF concluded they were and, although improvement recommendations were made, the FCA ultimately gave MFS the all clear in its review. Similarly the main MFS entity’s auditor signed off its 2024 accounts with an unqualified opinion. Potentially red flags, such as the use of small high street auditors, were seemingly overlooked.

We are starting to see increased focus from the FCA on anti-money laundering and know your client compliance. A challenge for bridging lenders will be how to retain their agility in the face of increased compliance requirements. The FCA also appears to be increasing its focus on Consumer Duty, centring on increased levels of transparency in both fees and exit strategies. In my practice, I am increasingly seeing consumer borrowers making reports to the FCA and challenging the enforceability of facilities on the basis of purported regulatory issues. Whether the FCA has the means and resources to deal with increased complaints remains to be seen. However the increased regulatory challenges by borrowers through the court system, coupled with significant delays in the court system pose a real challenge in the private credit space.

Perhaps in recognition of the importance of the provision of private credit, as matters stand, there does not seem to be political appetite to make significant changes to the existing regulatory regime. Whether any such chances are made in the future feels very much dependent on the future political direction of the UK. However, even if the formal regulation of the sector does not change, we may well still see change within the sector driven by stake holders and senior lenders taking their own steps to guard against similar losses, particularly as regards the risks of double pledging. Private credit lenders should expect to see lenders introducing a more vigorous system of checks on security; lenders more frequently exercising their contractual rights to obtain information and carrying out more due diligence on the information provided. Audit rights may more commonly be written into transaction documents and it may become more common place for these rights to be exercised.

As the private credit sector continues to grow and occupy an increasing share of the lending market, it is more important than ever for those within the space to ensure they are deal with the evolving regulatory challenges.