Private markets review findings

The Financial Conduct Authority has published findings from a review examining how firms identify, manage, mitigate and disclose conflicts of interest. Private markets refer to investments in assets, companies, or debt not listed or traded on public exchanges. They have grown significantly in recent years, and the UK is a leading international centre. Private markets play an increasingly important role in providing capital to businesses and opportunities for returns to investors.

Importance of effective disclosure

Private markets can give rise to conflicts that differ from those found in public markets. Effective disclosure is important to enable investors to assess whether their interests are being protected, particularly in areas where investors place significant reliance on firms' judgement, governance and controls.

Good practice and areas for improvement

The FCA found examples of good practice by firms across private equity, private credit and real estate asset classes. These included strong governance arrangements, effective oversight and independent challenge. The regulator also identified some areas where firms could strengthen governance, oversight and conflicts management arrangements to support fair investor outcomes.

Recurring weaknesses identified

As private markets grow and business models become more complex, the FCA found that some firms were failing to identify conflicts adequately or keep their controls up to date. Recurring weaknesses were identified in areas including cross-fund transfers and multi-party transactions, gifts and entertainment, and information barriers.

Industry response and expectations

Michelle Beck, director of wholesale buy-side at the FCA, stated that firms need to ensure their management of conflicts of interest keeps pace with growth in their size and complexity. While good practice was found across the sector, standards varied considerably. The FCA expects firms to act on these findings, strengthen their controls, and demonstrate that investors are being treated fairly.