The UK’s Financial Conduct Authority has opened an enforcement investigation into Market Financial Solutions, the London-based mortgage lender that fell into administration on 25 February following allegations of wrongdoing and mounting creditor losses.

In a statement on Friday, the regulator said it had launched a formal probe into the firm, which it supervises only for compliance with money laundering, terrorist financing and fund transfer rules. “We have opened an enforcement investigation into Market Financial Solutions Limited (MFS),” the Financial Conduct Authority said, noting that the company was not subject to its broader regulatory regime.

According to reporting by the Financial Times, the collapse of MFS and several linked entities owned by founder Paresh Raja has exposed creditors to potential losses exceeding £2 billion. The group had borrowed extensively from banks and investment firms before entering insolvency, raising concerns about oversight in parts of the lending market that sit outside full regulatory supervision.

Bloomberg reported that creditors are already bracing for losses of at least £1.3 billion following the firm’s failure. MFS had secured funding from institutions including Barclays and Apollo Global Management’s Atlas SP unit, reflecting its reliance on private credit markets rather than traditional retail funding.

The Guardian reported that court orders in London and Dubai have frozen assets worth up to £1.3 billion linked to Raja, alongside a travel ban imposed as investigations continue. A spokesperson for AlixPartners, the insolvency practitioner handling the case, said: “We welcome the granting of these applications which follow two weeks of intense analysis and investigation into the operations and affairs of MFS and Paresh Raja.”

The same report said administrators had raised concerns that some borrowers linked to MFS may have been connected to Raja and could have been used to extract funds under false pretences. Creditors have also alleged instances of “double pledging”, where the same property was used as collateral for multiple loans, potentially leaving some exposures unsecured.

Raja has declined to comment publicly on the investigation. His lawyer told the Daily Telegraph that “mistakes have been made but there has been no intention to defraud whatsoever”, adding that allegations against his client were “materially incorrect”.

City AM reported that the Bank of England has rejected calls from the House of Lords’ Financial Services and Regulation Committee to accelerate its first stress test of the private credit sector, despite concerns about systemic risks. Governor Andrew Bailey said he wanted to be “mindful of the constraints of participating firms”, confirming that analysis would be largely completed in 2026 with a final report due in early 2027.

The same report said peers had urged the central bank to treat the exercise as a “matter of urgency” and provide more frequent updates, citing limited data on the fast-growing sector. The Bank’s stance comes as private credit markets face heightened scrutiny following a series of high-profile failures and market dislocations affecting major global lenders.

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