- FCA opens enforcement investigation into collapsed lender MFS.
- Founder Paresh Raja faces £1.3bn global asset freeze.
- Banks and hedge funds exposed to potential losses.
The UK’s Financial Conduct Authority has launched an investigation into Market Financial Solutions (MFS), the mortgage lender that collapsed last month, as questions mount over alleged fraud and the handling of billions in loans.
The FCA confirmed it has opened an enforcement investigation into the company, which fell into administration in February after borrowing around £1.3bn from a network of banks, hedge funds and private credit firms.
The move follows a court decision to impose a £1.3bn worldwide asset-freezing order on MFS founder Paresh Raja. The order, granted in London and Dubai, is intended to prevent assets from being moved while legal proceedings continue.
Allegations around loans and connections
At the centre of the case are claims from creditors that some mortgage borrowers linked to MFS may have been connected to Raja himself. Court documents suggest the structure could have been used to move money under false pretences, though these claims are yet to be fully tested.
There are also concerns about how loans were secured. Creditors have alleged that some properties may have been used as collateral for multiple loans at the same time, a practice known as “double pledging”. If proven, that could leave lenders exposed to losses where security overlaps.
MFS had operated by receiving funds from financial institutions and then lending that money out as mortgages. The collapse has raised questions about how those funds were managed and whether adequate checks were in place.
Banks and lenders face potential losses
A number of major financial institutions are now caught up in the fallout. These include Barclays, Jefferies and Santander, alongside hedge funds and private credit firms such as Elliott Management, Castlelake and Apollo’s Atlas SP unit.
The scale of potential losses remains uncertain. Barclays chief executive CS Venkatakrishnan reportedly said the bank expects losses to be “materially lower” than £500m, the amount owed to it, as quoted in a news report.
For regulators, the case may test how effectively oversight mechanisms can identify risks in complex lending structures, particularly where multiple parties and jurisdictions are involved.
The FCA has not provided further details on the scope or timeline of its investigation. Much will likely depend on the outcome of ongoing legal proceedings and the extent to which the allegations are substantiated.
