Some private market firms are failing to adequately identify conflicts of interest or update their controls as their businesses grow, according to a review by the Financial Conduct Authority (FCA).
The regulator examined practices across private equity, private credit and real estate, finding significant variation in how firms identified, managed and disclosed potential conflicts.
It identified recurring weaknesses in areas including cross-fund transfers, transactions involving multiple parties, gifts and entertainment, and information barriers.
The review comes amid significant growth in private markets, with the FCA describing the UK as a leading European centre for private market asset management.
Governance and oversight
The FCA found examples of good practice, including strong governance arrangements, effective oversight, and independent challenge. However, it said some firms needed to strengthen their governance and conflicts management arrangements to ensure investors were treated fairly.
The regulator expects firms to identify, record, manage and disclose conflicts effectively, particularly where investors rely heavily on firms’ judgement and internal controls.
“Firms need to ensure their management of conflicts of interest keeps pace with growth in their size and complexity.”
Michelle Back, Financial Conduct Authority
Michelle Beck, director of wholesale buy-side at the FCA, said: “Firms need to ensure their management of conflicts of interest keeps pace with growth in their size and complexity. We found good practice across the sector, but standards varied considerably.
“We want to encourage confidence in the UK’s private markets. Firms should act on our findings and identify where they can strengthen controls.”
The review forms part of the FCA’s wider supervisory focus on private markets and investor outcomes, as the growth of the sector creates new challenges for regulatory oversight.
Separately, the regulator is examining governance and conflicts concerns surrounding the use of private credit to fund consumer litigation claims.
Although this activity was not covered by the review, the FCA said it was investigating significant risks of harm to investors, consumers and markets arising from these arrangements.
