The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Banks now participate not only as lenders but also as liquidity providers, structuring counterparties and capital intermediaries across increasingly complex fund ecosystems. As supervisory attention sharpens, institutions should consider whether governance, valuation discipline and risk aggregation frameworks remain proportionate to the scale and interconnectedness of their exposures.

1. Management of fund finance products

Subscription facilities and Net Asset Value (NAV) lending continue to anchor banks’ involvement in private credit structures. While subscription lines are secured against committed investor capital, NAV facilities are directly influenced by underlying portfolio valuations. Where pricing is periodic and methodologies vary across managers, lenders are dependent on valuation processes outside their control. Governance arrangements, internal challenge and management information should reflect that dependency, particularly where collateral values determine liquidity capacity and covenant headroom.

2. Counterparty credit risk and data aggregation

Private market sponsors frequently operate through multiple funds and vehicles, often employing layered leverage. A single sponsor relationship may therefore span subscription finance, derivatives, hedging and other lending activities within the same institution. Without consolidated data aggregation, aggregate exposure can be obscured. Supervisory messaging increasingly emphasises integrated reporting, clearly articulated exposure limits and board-level visibility of sponsor-linked concentrations.

3. Scrutiny of significant risk transfer

Significant Risk Transfer (SRT) transactions remain a feature of capital management strategies. Regulators are examining whether reductions in risk-weighted assets reflect genuine economic transfer rather than structural form. 

Particular focus has fallen on liquidity assumptions and the treatment of subordinated or illiquid tranches within modelling frameworks. Institutions should ensure that documentation, modelling approaches and governance processes align with the underlying risk profile and are subject to effective independent challenge.

4. Valuation opacity and collateral liquidity

Private credit assets lack continuous market price discovery, and banks often rely on manager-provided marks supported by internal modelling. Divergent assumptions and limited secondary market depth may become more pronounced under stress conditions. Where private assets are used as collateral within secured or structured transactions, firms should be able to evidence credible liquidity and defensible valuation methodologies supported by independent validation.

5. Interconnectedness, technology and systemic risk

The private credit ecosystem increasingly links banks, insurers and asset managers across jurisdictions. Risk may appear to transfer off balance sheet yet re-emerge through financing chains, collateral reuse or correlated investor behaviour. Stress testing and scenario analysis should therefore incorporate funding dependencies and cross-sector linkages alongside traditional credit deterioration assumptions, particularly where model-driven decision tools may amplify market responses.

6. Impact on insurance claims and exposures

As private credit structures become embedded within semi-liquid and diversified fund formats, downstream liability exposure is becoming more relevant. Allegations relating to valuation integrity, liquidity management, disclosure practices or governance oversight may give rise to financial lines claims where investor losses are linked to misrepresentation or control weaknesses. 

Directors’ and officers’ liability, professional indemnity and financial institution policies may be engaged in disputes involving contested marks, redemption restrictions or risk disclosures, particularly as regulatory scrutiny intensifies and structures grow more complex.

Meeting regulatory expectations

Private credit continues to offer strategic opportunity, but supervisory expectations are evolving in parallel. Governance, valuation discipline, capital treatment and exposure aggregation capabilities should develop in line with market participation. A structured reassessment across these six areas will assist boards in demonstrating that private credit risks are being identified and managed with appropriate rigour.

Read more on private credit or contact Rebecca Deane for further information.