FCA Supervisory Strategy To Probe Private Equity and MPS

The Financial Conduct Authority (FCA) has issued its supervisory priorities for asset management and alternative firms over the next 12 months. Their letter highlights key areas of regulatory focus and potential risks that the FCA expects firms to discuss at board and senior management level.

Who Should Be Paying Attention?

The FCA’s priorities are not aimed at all firms equally. Some topics are targeted at specific types of firms, while others reflect broader themes.

Firms Managing Private Market Investments

The FCA is increasing scrutiny of private market investments due to risks in valuation, conflicts of interest, and financial crime exposure.

• Findings from a multi-firm review on private market valuation practices will be published soon, and firms are expected to assess their valuation governance accordingly.
• The FCA plans a review of conflicts of interest at firms managing private assets, focusing on governance, oversight, and internal reviews.
• The FCA also highlights increased financial crime risks in private markets due to complex ownership structures and proposes a supervisory focus on anti-money laundering (AML) controls in private market funds.
• While the FCA notes there are currently limited opportunities for retail investors to invest in private assets, it plans to continue supervising the indirect distribution of private investments to retail investors to ensure they receive appropriate information.

Firms Offering Model Portfolio Services (MPS)

MPS have grown at pace. They sit outside traditional fund wrappers but generally invest in investment funds, with asset managers playing a key role in constructing and distributing these services.

• The FCA plans a multi-firm review of MPS, focusing on how firms are applying the Consumer Duty to show that investors are receiving good outcomes from MPS.

Firms Marketing Sustainable Investment Products

• The FCA is actively monitoring compliance with new sustainability labelling, naming, and marketing rules and plans to engage directly with firms offering sustainability-related products.

All Firms – Financial Crime, Market Abuse, and Operational Resilience

• The FCA continues to prioritise these three key risk areas, including highlighting risks to resilience and markets of third-party dependencies.

What Firms Should Do Now

• The FCA expects firms to discuss their letter at board and executive levels, to consider whether the risks identified exist and to implement strategies for managing them.

What this means in practice:

• Assess Exposure to FCA Priorities – Determine whether your firm is in scope of the risk areas identified in the Supervisory Strategy letter.
• Engage Compliance & Risk Teams – Review and assess existing frameworks, benchmarking with FCA expectations. Where weaknesses exist, address these.
• Consider External Compliance Support – For firms facing increased FCA scrutiny, independent reviews of valuation processes, conflicts of interest management, AML frameworks and Consumer Duty compliance may help identify and mitigate regulatory risks.

For further information on how Ellis Wilson can help you be In Compliance, contact us.

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