FCA Review Finds Uneven Conflicts Controls Across Private Market Firms

The Financial Conduct Authority on 23 October 2026 published the findings of a multi-firm review of conflicts of interest in private markets and called on firms to ensure their management of conflicts keeps pace with the sector’s rapid growth. The regulator said it found examples of good practice across private equity, private credit and real estate asset classes, including strong governance arrangements, effective oversight and independent challenge, but that standards varied considerably. Recurring weaknesses were identified in areas including cross-fund transfers and multi-party transactions, gifts and entertainment, and information barriers.

Private markets refer to investments in assets, companies or debt not listed or traded on public exchanges. The FCA said they have grown significantly in recent years, that the UK is a leading international centre, and that private markets play an increasingly important role in providing capital to businesses and opportunities for returns to investors. Because private markets can give rise to conflicts that differ from those in public markets, the regulator said effective disclosure is important to enable investors to assess whether their interests are being protected.

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

The review covered firms managing funds or providing portfolio management and/or advisory services in the UK involving private equity, private credit and real estate assets. It was conducted in two phases: a questionnaire sent to a sample of firms with broad coverage across business models, asset classes, ownership structures, delegation models and firm size, followed by on-site visits to a selected group of firms. The FCA assessed firms’ frameworks against Handbook requirements on conflicts of interest, governance, systems and controls, and disclosure obligations, citing SYSC 10, COLL 8.5.7, COBS 2.3A.8R, COBS 11.7 and COBS 11.7A. The detailed findings were published in the review document “Conflicts of interest and fair customer treatment in private markets”.

Governance and Oversight

According to the review, many firms demonstrated effective governance, strong conflict identification processes and a clear focus on investor outcomes, but governance arrangements and controls did not always reflect the level of complexity within business models, and some firms with more complex business models did not operate proportionately stronger governance and control frameworks. Some firms characterised their UK-based activities as investment advisory activities because formal investment decisions were taken by overseas entities; the FCA said it observed instances where conflicts identification, governance and oversight arrangements did not fully reflect the substance, scale and complexity of activities undertaken in the UK.

Firms with the strongest arrangements embedded conflict identification across all three lines of defence, supported by bespoke training, defined escalation routes and clear materiality thresholds, while weaker firms relied on a single line of defence or on individuals to identify and escalate conflicts with no clearly defined process, the review found. All firms in the review maintained a conflicts register, and most had a comprehensive conflicts framework document, though some had not updated documentation to reflect changes in business models and others had repurposed group policy documents without tailoring them sufficiently to private markets. Only 52% of firms in phase 1 said internal audit had a role in reviewing the conflicts framework and its application.

Engagement with Limited Partner Advisory Committees varied widely, and typically only the largest limited partners were permanently represented, the review found. The FCA said firms should not rely on consultation with a subset of specific investors as the primary mechanism to manage material conflicts, and that investor consultation should operate alongside strong governance, oversight and conflicts-management arrangements.

Personal Conflicts and the Investment Lifecycle

All firms reviewed operated gifts and entertainment policies, approval thresholds and reporting arrangements, but the quality of controls and supporting evidence varied significantly. The FCA said it observed gifts and entertainment of greater value and nature than it typically observes in public markets, including air travel and high-value sporting events, and that it would expect firms to be able to explain the rationale for them. One firm reported that it had aligned its private markets policy with its public markets approach and that it considers it suffers competitively from doing so; the FCA said it anticipates further discussions with firms to better understand their practices. The review also said assessing each hospitality event in isolation may fail to identify risks arising from repeated hospitality involving the same provider, recipient or business relationship, and noted that some firms had set limits on the value received from an individual firm within a calendar year.

On personal account dealing, the review noted that COBS 11.7A, for MiFID business, and COBS 11.7, for non-MiFID business, require firms to establish, implement and maintain adequate arrangements preventing staff from entering into personal transactions when certain criteria are met. All firms operated personal account dealing controls requiring approval before trading could take place, and most operated continued oversight through regular reviews, broker account declarations and post-trade monitoring.

Across the investment lifecycle, the review found that stronger firms embedded conflicts identification into origination and approval processes, with legal and compliance often engaged before non-disclosure agreements were signed, while weaker practice involved formal conflict assessments not being consistently undertaken before such agreements, resulting in greater reliance on investment professionals’ judgement. On information barriers, stronger firms combined physical, organisational and system-based restrictions with active compliance monitoring, while weaker arrangements relied heavily on training, informal zoning of teams and little monitoring. On allocation, stronger firms used clearly documented frameworks with predefined criteria and pro-rata methodologies for oversubscribed opportunities, while investment teams at weaker firms exercised broad discretion that made outcomes harder to challenge independently and systematically.

Connected or multi-party transactions involve multiple funds, investor groups or affiliated parties whose interests may not align, creating conflict risks where decisions on pricing, valuation, allocation, timing or terms could advantage one party at the expense of another, the review said. In one case, a firm told the FCA that an affiliated party had sought to circumvent the firm’s internal processes.

Cross-fund transactions and continuation vehicles create conflicts because the firm sits on both sides of the transaction, which can lead to harm for one set of investors when determining the sale price, timing or terms of a transfer, the review said. It cited one firm that received interest from external parties in purchasing an asset held by one of its funds, did not pursue that interest, and instead sold the asset to an internal fund at its NAV price. The firm was unable to explain to the FCA why it did not pursue the external parties’ interest or how it concluded the NAV price was in the best interests of the selling fund.

The review also examined most-favoured-nation clauses and side letters, which allow eligible investors to access rights equivalent to those available to comparable investors. It found weaker firms relied more heavily on fund-document disclosure and did not consistently demonstrate that they had systematically assessed the cumulative impact of preferential rights on other investors. Stronger firms treated disclosure as a supplementary control rather than a substitute for conflict management.

The FCA said it expects firms to keep conflict identification processes responsive to changes in their business, establish clear escalation thresholds, accountable owners and decision-makers for material or complex conflicts, and be able to demonstrate how they identified, assessed and addressed material conflicts and made decisions fairly and in investors’ interests. It said firms should view conflicts management as a dynamic capability rather than a static compliance framework, and that it will carry out targeted follow-up work where appropriate while continuing to engage with firms and industry bodies. Where conflicts are not identified and managed effectively, the regulator said, investors may be exposed to unfair treatment, inappropriate allocation decisions, valuation concerns or preferential treatment of certain investors.

Separately from the review, the FCA said it is examining governance and conflicts concerns relating to the use of private credit to fund consumer litigation claims, including significant risks of harm to investors, consumers and markets.