Failed Lender MFS Exposes Regulatory Blind Spot in UK Mortgages

The collapse of Market Financial Solutions Ltd, a UK mortgage lender accused of widespread fraud, has intensified concern over a growing problem in finance — what happens when lending is pushed out of the regulated banking system and into the shadows.

The firm, which borrowed more than £2 billion ($2.7 billion) from heavyweights including Barclays Plc and Banco Santander SA, claimed to be one of the UK’s biggest providers of short-term bridge loans until its Feb. 25 demise. Yet MFS operated largely beyond the purview of regulators primarily because it did not issue conventional homeowner loans or hold customer deposits, even though firms of its kind are capable of inflicting costly damage to mainstream lenders who do.