The Financial Conduct Authority (FCA) has told firms operating in private markets that their handling of conflicts of interest must evolve alongside the sector’s rapid expansion, after a review uncovered uneven standards across private equity, private credit and real estate.
The regulator’s assessment identified repeated shortcomings in several areas. These included transfers of assets between funds, transactions involving multiple parties, the handling of gifts and hospitality, and the effectiveness of information barriers. As business models have grown more intricate, the FCA said that a number of firms had not properly spotted conflicts or had allowed their controls to fall out of date.
The review was not wholly critical. The FCA highlighted firms that demonstrated robust governance, meaningful oversight and genuine independent challenge. It also pointed to areas where others could improve their governance, supervision and conflicts frameworks to deliver fair results for investors.
Private markets cover assets, businesses and debt that are not listed or traded on public exchanges. The segment has 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. However, they can generate conflicts that differ from those found in listed markets, which makes clear disclosure essential so investors can judge whether their interests are safeguarded.
The regulator expects firms to identify, log, manage and disclose conflicts properly, and to show that investors receive fair treatment. This applies especially where investors depend heavily on a firm’s judgement, governance and internal controls.
Separately from this review, the FCA is investigating governance and conflicts issues linked to private credit being used to finance consumer litigation claims. It flagged significant potential harm to investors, consumers and markets in that area.
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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