HSBC has booked a $400-million “fraud-related” charge tied to the collapse of UK bridging lender Market Financial Solutions, hitting first-quarter profits at Europe’s biggest bank and exposing one of the most material indirect transmission channels yet between private credit and a global systemically important lender, according to the Financial Times.

The charge reflects loans HSBC extended to a financial sponsor, identified by people familiar with the matter as Apollo’s asset-backed lending unit Atlas SP, which in turn had exposure to MFS, the FT reported. “We have an exposure to a financial sponsor who has an exposure to the company,” HSBC chief financial officer Pam Kaur said on a media call, without naming the group.

The structure—credit lines extended by banks to private-credit firms, known in the industry as back leverage—has come under increasing regulatory scrutiny as supervisors attempt to map the linkages between the two industries, the FT noted.

Atlas SP funds held £1 billion of debt across two of MFS’s lending vehicles, according to insolvency documents cited by the newspaper. Atlas has stated that its net economic exposure is £400 million while MFS creditors face a more than £1.3 billion shortfall amid allegations the lender double-pledged collateral, according to the report. 

Administrators said in a recent update that they are investigating income diverted to the wrong bank accounts and collateral used more than once for borrowing, The Wall Street Journal reported. The UK’s Financial Conduct Authority has launched an investigation into the MFS scandal, according to The Guardian. 

HSBC’s $400-million loss positions it among the lenders hardest hit by the MFS implosion, coming a week after Barclays disclosed a £228-million hit. Other backers of MFS included Castlelake, Jefferies Financial, and Banco Santander, with Apollo having taken on MFS assets when it acquired Credit Suisse’s asset-backed lending division and rebranded it Atlas, the WSJ said. 

Kaur said HSBC had relied on due diligence performed by private-equity firms and indicated the bank would tighten its own procedures, particularly where exposure is held in a “secondary context,” The Guardian said.