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FRM Part II · FRM Exam Part II · The Rise and Risks of Private Credit

A regulator is concerned about opacity in private credit. Which disclosure improvement would best help supervisors assess systemic risk from the sector?

Granular, standardized reporting on leverage, borrower-level exposures and links with banks best helps supervisors. Data gaps are a core regulatory concern in private credit, and such information lets authorities identify concentrations and contagion channels that headline returns or par valuations conceal.

  1. APublishing only the funds' headline annual returns
  2. BGranular, standardized data on leverage, borrower-level exposures and bank-fund linkages reported to authoritiesCorrect
  3. CRestricting reporting to the largest investors only
  4. DReplacing valuations with par values until default

Explanation

Systemic risk assessment requires data on leverage, exposure concentrations and interconnections, which are currently fragmented in private credit. Headline returns and par valuation hide risk, and investor-only reporting does not give supervisors a full view.

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