Key Takeaways
- • The UK Financial Conduct Authority (FCA) has told private markets firms that their conflicts of interest management must evolve as the sector expands, following a review that found uneven standards across private equity, private credit and real estate.
- • The FCA identified repeated shortcomings in asset transfers between funds, multi-party transactions, gifts and hospitality handling, and the effectiveness of information barriers, with some firms failing to spot conflicts or letting controls fall out of date.
- • The regulator expects firms to identify, log, manage and disclose conflicts and demonstrate fair treatment of investors, especially where investors rely heavily on a firm's judgement, governance and internal controls.
- • Separately, the FCA is investigating governance and conflicts issues linked to private credit financing consumer litigation claims, which it says poses significant potential harm to investors, consumers and markets.
Summary
The Financial Conduct Authority has warned firms operating in private markets that their handling of conflicts of interest must keep pace with the sector's rapid growth. According to the regulator, a review uncovered uneven standards across private equity, private credit and real estate, with some firms failing to properly identify conflicts or allowing their controls to become outdated as business models grew more complex.
The review identified repeated weaknesses in several areas: transfers of assets between funds, transactions involving multiple parties, the handling of gifts and hospitality, and the effectiveness of information barriers. The FCA was not wholly critical, however. It highlighted firms that demonstrated robust governance, meaningful oversight and genuine independent challenge, while noting areas where others could strengthen their governance, supervision and conflicts frameworks to deliver fair outcomes for investors.
The FCA noted that private markets, covering unlisted assets, businesses and debt, have expanded considerably in recent years, with the UK established as a major global hub. These markets increasingly supply funding to companies and offer investors potential returns, but they can generate conflicts that differ from those in listed markets, making clear disclosure essential for investors to judge whether their interests are safeguarded. The regulator expects firms to identify, log, manage and disclose conflicts and to demonstrate fair treatment, particularly where investors depend heavily on a firm's judgement and controls.
Separately from the review, the FCA is investigating governance and conflicts issues tied to private credit used to finance consumer litigation claims, an area where it has flagged significant potential harm to investors, consumers and markets.
FCA director of wholesale buy-side Michelle Beck 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 identified repeated weaknesses in several areas: transfers of assets between funds, transactions involving multiple parties, the handling of gifts and hospitality, and the effectiveness of information barriers. The FCA was not wholly critical, however. It highlighted firms that demonstrated robust governance, meaningful oversight and genuine independent challenge, while noting areas where others could strengthen their governance, supervision and conflicts frameworks to deliver fair outcomes for investors.
The FCA noted that private markets, covering unlisted assets, businesses and debt, have expanded considerably in recent years, with the UK established as a major global hub. These markets increasingly supply funding to companies and offer investors potential returns, but they can generate conflicts that differ from those in listed markets, making clear disclosure essential for investors to judge whether their interests are safeguarded. The regulator expects firms to identify, log, manage and disclose conflicts and to demonstrate fair treatment, particularly where investors depend heavily on a firm's judgement and controls.
Separately from the review, the FCA is investigating governance and conflicts issues tied to private credit used to finance consumer litigation claims, an area where it has flagged significant potential harm to investors, consumers and markets.
FCA director of wholesale buy-side Michelle Beck 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."
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