UK Financial Conduct Authority finds gaps in private market conflicts controls as firms grow more complex

The Financial Conduct Authority (FCA) published findings from a review of multiple private market firms showing that conflicts management had not always kept pace with business growth and complexity. The review covered private equity, private credit and real estate managers and advisers. While many firms demonstrated effective governance and independent challenge, others relied heavily on investment teams’ judgment and lacked adequate escalation or oversight. Firms are expected to assess gaps and ensure their controls reflect the substance, scale and complexity of their activities, including UK activities formally structured as advisory services. Recurring weaknesses involved transfers between funds and continuation transactions, gifts and entertainment, and information barriers. Some firms relied on disclosure or investor consent without demonstrating how they balanced competing investor interests. Stronger arrangements separated buying and selling decisions, applied independent valuation oversight and documented investor fairness assessments. Effective hospitality controls assessed business justification and cumulative exposure, while stronger information barriers combined physical and system restrictions with compliance monitoring rather than relying on staff awareness alone. The FCA expects firms to identify conflicts early throughout the investment lifecycle, establish clear escalation thresholds and accountable decision-makers, and maintain evidence supporting fair decisions. Disclosure and investor consultation should supplement, not replace, effective conflict management and independent challenge. Only 52% of firms responding in the review’s first phase reported an internal audit role in reviewing their conflicts framework and its application. The regulator plans targeted follow-up where appropriate.