The House of Lords Financial Services Regulation Committee has published a new report examining the rapid expansion of global private markets and the potential implications for the UK’s financial stability, warning that significant data gaps make it difficult to assess systemic risk.
According to the Committee, global private markets have grown from less than $4tn in assets under management in 2008 to around $16tn today, with approximately $185bn attributed to the UK.
While the sector has delivered strong returns for investors and supported bespoke financing for UK companies and infrastructure projects, the pace of growth and increasing interconnectedness with banks and insurers has raised concerns among policymakers.
The inquiry found that regulatory reforms introduced after the Global Financial Crisis, particularly changes to bank capital and liquidity requirements, have played a central role in reshaping the UK’s lending landscape. These reforms, while intended to strengthen financial resilience, have encouraged banks to retreat from riskier forms of lending. As a result, banks have reduced direct lending to UK companies relative to other types of activity, creating space for the growth of private credit.
At the same time, banks are increasingly relying on an ‘originate to distribute’ model, where loans are originated on bank balance sheets before being distributed to non-bank entities, including private credit funds. The Committee noted that this model has become a significant driver of private credit growth, increasing interdependencies across the financial system.
The report also highlighted long-standing challenges in SME finance. Demand for borrowing among small and medium-sized enterprises has remained subdued, while the supply of finance has been constrained by higher bank capital requirements and the limited participation of private credit providers in the SME market. The Committee suggested that addressing constraints on smaller and specialist banks could help unlock additional lending capacity if demand were to recover.
Despite clear evidence of market expansion, the Committee concluded that there is insufficient data to determine whether private credit poses a systemic risk. Limited visibility into the scale of lending, risk transfers, and the growth of instruments such as collateralised loan obligations has created what the Committee described as significant “unknown unknowns”.
Lord Forsyth of Drumlean, Chairman of the House of Lords Financial Services Regulation Committee, said, “There were too many unknown unknowns to determine whether private markets pose a systemic risk to the UK’s financial stability. Our inquiry sought to shine a light on the implications of the rapid growth of private credit markets.”
He added, “The Bank of England, the Financial Conduct Authority, and the Prudential Regulation Authority are right to be vigilant and to monitor the dramatic growth of private markets and the implications for financial stability.”
The Committee also expressed concern over what it described as a lack of urgency from HM Treasury, stressing that maintaining financial stability and limiting the risk of taxpayer intervention remains a core responsibility of government.
Lord Forsyth concluded, “Post-Global Financial Crisis reforms have altered the UK’s lending landscape to the disadvantage of SMEs.”
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