FCA Demands Stricter Conflict Management as Private Markets Surge

The Financial Conduct Authority (FCA) has issued a warning to private market firms following a review into how they manage conflicts of interest. As the UK cements its position as a global hub for private equity and credit, the regulator is demanding more robust governance to protect investors from risks associated with cross-fund transfers and multi-party transactions.

What was announced

The FCA's review targeted firms across the private equity, private credit, and real estate asset classes. While the regulator identified instances of strong governance and independent challenge, it highlighted significant disparities in how firms identify and mitigate conflicts. The growth of private markets—investments in assets, companies, or debt not listed or traded on public exchanges—has introduced complexities that some firms' controls have failed to match.

Specific weaknesses were identified in the handling of gifts and entertainment, information barriers, and multi-party transactions. The regulator emphasized that as business models evolve and grow in complexity, firms must ensure their disclosure practices allow investors to assess if their interests are being protected. A recurring issue found during the review was the failure of some firms to keep their internal controls up to date or adequately identify conflicts in areas such as cross-fund transfers.

Furthermore, the FCA revealed it is separately examining governance and conflict concerns relating to the use of private credit to fund consumer litigation claims. This specific area is being scrutinized for risks of harm to investors, consumers, and the broader market. Firms are now expected to demonstrate that they can record and manage conflicts effectively, particularly in scenarios where investors place significant reliance on the firm's internal judgment and governance frameworks.

"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."

Michelle Beck, director of wholesale buy-side at the FCA.

The companies involved

The Financial Conduct Authority (FCA) is the conduct regulator for nearly 50,000 financial services firms and financial markets in the UK. Operating as an independent public body, it is accountable to the Treasury and Parliament, with a mandate to ensure markets function well, protect consumers, and promote healthy competition. The UK serves as a leading international centre for private markets, making the FCA’s oversight critical for global capital flows and the stability of the domestic financial system.

The regulator has increasingly focused on the intersection of traditional finance and emerging asset classes, maintaining a high bar for compliance across diverse sectors. Its role involves not only setting standards but also investigating market abuse and ensuring that firms maintain adequate operational resilience. With the private market sector providing essential capital to businesses and returns to institutional investors, the FCA’s scrutiny reflects the growing systemic importance of non-publicly traded debt and equity in the broader British economy.

What FF News has reported before

FF News has extensively tracked the FCA’s evolving regulatory stance across various sectors of the UK financial landscape. Recently, the regulator has been active in enforcement and policy setting, as seen in the FCA and NCA Strike Major Blow to Organised Insider Dealing Ring with Three Arrests. The authority has also been navigating complex legal landscapes, such as the FCA Motor Finance Compensation Scheme Legal Challenge Set for February 2027. In terms of innovation and future-proofing the sector, the regulator has provided guidance on FCA Outlines Vision for 'Agentic' Finance and Responsible AI Adoption in UK Services and recently established a FCA Opens Crypto Authorisation Gateway: Travers Smith Highlights High Bar for Compliance.

What this means

This review signals that the era of lighter-touch oversight for private markets is coming to an end as regulators demand the same level of transparency found in public equities. The focus on cross-fund transfers suggests the FCA is concerned about "valuation smoothing" or preferential treatment between different investor pools, which could put fund managers under immense pressure to overhaul their internal audit trails. For the fintech sector, this creates a clear opportunity for compliance-as-a-service providers to offer automated conflict-of-interest tracking. The industry must now grapple with whether current self-regulation is sufficient or if more prescriptive rules are inevitable to maintain the UK's competitive edge.