Key Takeaways
- • The UK Financial Conduct Authority (FCA) called on private market firms to strengthen how they identify, manage, and disclose conflicts of interest as their size and complexity grow.
- • The FCA's review covered private equity, private credit, and real estate, finding good practice in governance, oversight, and independent challenge, but standards that "varied considerably" across the sector.
- • Recurring weaknesses were identified in cross-fund transfers, multi-party transactions, gifts and entertainment, and information barriers.
- • The FCA expects firms to demonstrate that investors are treated fairly, particularly where investors rely heavily on firm judgement, governance, and controls.
- • The FCA is separately examining governance and conflicts risks in the use of private credit to fund consumer litigation claims, though this sits outside the current review.
Summary
The Financial Conduct Authority has published findings from a review of conflicts of interest in private markets, urging firms to ensure their controls keep pace with rapid growth. Private markets, which cover assets, companies, and debt not listed or traded on public exchanges, have expanded significantly in recent years, and the UK is described by the regulator as a leading international centre. According to the FCA, these markets can give rise to conflicts that differ from those in public markets, making effective disclosure important so investors can assess whether their interests are protected.
The review examined how firms identify, manage, mitigate, and disclose conflicts across private equity, private credit, and real estate. The FCA found examples of good practice, including strong governance arrangements, effective oversight, and independent challenge. It also identified areas where firms could strengthen governance, oversight, and conflicts management to support fair investor outcomes. As business models become more complex, some firms were failing to identify conflicts adequately or to keep their controls up to date. Recurring weaknesses included cross-fund transfers and multi-party transactions, gifts and entertainment, and information barriers.
The FCA said it expects firms to identify, record, manage, and disclose conflicts effectively, and to demonstrate that investors are treated fairly, particularly where investors place significant reliance on firm judgement, governance, and controls. 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," adding that the regulator found good practice across the sector but that standards varied considerably. She added that the FCA wants to encourage confidence in the UK's private markets and urged firms to act on the findings and identify where controls can be strengthened.
Outside the scope of this review, the FCA is examining governance and conflicts concerns related to the use of private credit to fund consumer litigation claims, which it says carries significant risks of harm to investors, consumers, and markets. The review forms part of the FCA's wider supervisory focus on private markets and investor outcomes.
The review examined how firms identify, manage, mitigate, and disclose conflicts across private equity, private credit, and real estate. The FCA found examples of good practice, including strong governance arrangements, effective oversight, and independent challenge. It also identified areas where firms could strengthen governance, oversight, and conflicts management to support fair investor outcomes. As business models become more complex, some firms were failing to identify conflicts adequately or to keep their controls up to date. Recurring weaknesses included cross-fund transfers and multi-party transactions, gifts and entertainment, and information barriers.
The FCA said it expects firms to identify, record, manage, and disclose conflicts effectively, and to demonstrate that investors are treated fairly, particularly where investors place significant reliance on firm judgement, governance, and controls. 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," adding that the regulator found good practice across the sector but that standards varied considerably. She added that the FCA wants to encourage confidence in the UK's private markets and urged firms to act on the findings and identify where controls can be strengthened.
Outside the scope of this review, the FCA is examining governance and conflicts concerns related to the use of private credit to fund consumer litigation claims, which it says carries significant risks of harm to investors, consumers, and markets. The review forms part of the FCA's wider supervisory focus on private markets and investor outcomes.
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