FCA Review Highlights Gaps in Private Markets Conflict Controls

The FCA’s latest review of conflicts of interest in private markets shows that governance and controls must keep pace with the complexity of a firm’s business model. With targeted follow-up work expected, firms should be prepared to explain how they identify material conflicts, assess competing interests, and reach decisions that are fair to investors.

Published on 23 October 2026, the review recognised that many firms had robust arrangements in place. It also identified material variation, particularly among firms with more complex structures, multiple funds or strategies, and significant discretion over investment decisions.

The FCA’s Review of Conflicts of Interest and Fair Customer Treatment Across Private Markets

The review is relevant to asset managers, alternative investment fund managers, and investment advisers operating in private markets. Although it focused on private equity, private credit, and real estate firms, the FCA noted that its observations may also apply more widely across the sector.

The FCA examined whether UK firms managing funds or providing portfolio management or advisory services in the UK had conflicts of interest frameworks and governance arrangements robust enough to identify, manage, mitigate, and disclose conflicts, while supporting the fair treatment of investors.

Its work combined a questionnaire covering a range of business models, asset classes, ownership structures, delegation models, and firm sizes with on-site visits to selected firms. The review considered actual, potential, and perceived conflicts, including personal conflicts, those arising from business models and operating structures, and those arising across the investment lifecycle, from origination and allocation through to valuation and exit.

The FCA Found Uneven Conflict Controls in Private Markets

The FCA noted that conflict risk is inherent in private markets asset management and advisory activities and is shaped by firms’ business models, investment structures, and ownership arrangements. Private markets also create challenges that differ from those in public markets. Firms may manage multiple funds and strategies, operate across different parts of the capital structure, and exercise significant discretion when making investment decisions.

The FCA’s findings were mixed. It identified strong practices at many firms, including effective governance, robust conflict identification processes, and a focus on investor outcomes. However, quality varied markedly. Most notably, some firms with more complex business models had not strengthened their governance and controls to match the greater conflict risk those models created.

The review is particularly relevant where a decision affects more than one investor group. Cross-fund transactions, continuation vehicles, and valuation-related decisions can bring competing interests into sharper focus. Firms should be able to demonstrate how those interests were identified and weighed.

The FCA identified the following recurring weaknesses:

1. Cross-fund transactions and continuation vehicles: These transactions can place different investor interests on opposite sides of the same decision. The FCA found that weaker frameworks relied on existing governance, disclosure, or investor consent without clearly showing how those interests had been assessed and balanced. This matters particularly where valuation influences the transaction price, allocation, or decision to proceed.
2. Gifts and entertainment: Policies often set notification thresholds and established approval routes. The issue was whether the process showed that the underlying conflict or inducement risk had been considered in each case.
3. Information barriers: Some firms depended heavily on training, individual judgment, and informal safeguards. Their monitoring did not always provide a clear picture of whether confidential information was properly contained.
4. Substance over legal form: Some firms treated their UK activities as advisory because formal decisions were taken overseas, resulting in a narrow UK conflicts framework. The FCA found that UK-based staff could nonetheless play a material role across the investment lifecycle. It expects frameworks to reflect the real nature of activity undertaken, rather than its legal classification alone.

Personal Conflicts Need Stronger Controls and Clearer Records

Personal Account Dealing

The FCA reminds firms that the Conduct of Business Sourcebook (COBS) 11.7A for MiFID business and COBS 11.7 for non-MiFID business require arrangements to restrict personal transactions by staff, including directors, partners and appointed representatives, where specified conditions are met.

In private markets, relevant exposures can include investments in portfolio companies or their stakeholders, such as suppliers, customers and landlords; co-investment opportunities; and interests connected with sponsors, counterparties, and other market participants. All reviewed firms required approval before personal transactions could take place. Most also maintained ongoing oversight through regular reviews, broker account declarations and post-trade monitoring.

Gifts and Entertainment

This is where the FCA’s tone is clear. All firms had policies, thresholds and reporting arrangements in place, but the quality of controls and supporting records varied significantly. The FCA’s concern was not simply whether a firm had a policy or predefined notification thresholds. It was whether the firm could show that its arrangements worked effectively in practice.

Three points are worth drawing out:

• Value and nature: The FCA saw examples of gifts and entertainment that exceeded what it would typically expect in public markets, including air travel and high-value sporting events. Firms should be able to explain the business rationale for accepting or offering them.
• Records that evidence judgment: Stronger registers captured the business purpose, how the value was determined, relevant conflict and inducement considerations, and the reason for approval. They also recorded hospitality that was offered but declined. Weaker records relied on generic explanations and did not always show the reasoning behind an approval.
• Cumulative exposure: Reviewing each event in isolation can miss the risk created by repeated hospitality involving the same provider, recipient, or business relationship. Some firms had annual limits on the value of gifts and entertainment received from a single firm or its employees.

Private Markets Firms Should Review Their Conflict Frameworks Now

The FCA expects firms to consider the review’s findings and assess whether their conflicts framework, governance arrangements, and controls remain proportionate to the nature, scale, substance, and complexity of their activities. Not every finding will apply to every firm, but firms should be able to show that they have identified and addressed the conflicts arising from their activities.

The priority is not simply to refresh a policy or update a register. Firms should test whether their governance, controls, and decision-making processes work when investor interests diverge or a transaction becomes more complex.