Private markets firms are entering a supervisory phase that feels materially different from previous cycles. The FCA has signalled a busier supervisory agenda, with a sharper focus on how firms operate in practice. Enforcement activity may be more selective, but where action is taken, it is likely to be targeted and consequential.
What’s noteworthy is not the introduction of entirely new rulebooks, but the intensity with which existing expectations are being examined. The UK regulator’s attention is increasingly directed at the operational reality behind governance frameworks. Policies alone will not suffice. Supervisors are considering how decisions are made, challenged in real-time, and documented.
Our view is that 2026 will be defined less by technical rule changes and more by supervisory interactions and judgement. Firms that treat governance as static documentation risk falling behind. Those who view governance infrastructure as living architecture will be better positioned to withstand scrutiny.
The central question is, “Would your current framework withstand detailed examination by both peers and supervisors?”
Conflicts Management Must Withstand Structural Scrutiny
Conflicts of interest will remain a dominant regulatory theme in private markets. The FCA’s recent compulsory questionnaire and ongoing data gathering exercises demonstrate the regulator’s determination to understand how firms identify and manage conflicts across their operations.
Continuation funds, co-investment opportunity allocations, cross-fund transactions, asset transfers, fee structures, and investor consent processes are all under examination. These features are inherent to private markets business models. The regulatory expectation is not that they disappear, but that they are transparently managed and appropriately documented.
Recent supervisory commentary following valuation reviews identified weaknesses in how conflicts were identified and recorded, particularly in areas such as investor marketing, secured borrowing arrangements, and asset transfers between vehicles.
We recently brought together senior leaders across the private markets compliance community for a dinner in London. Participants shared candid reflections on the practical challenges of keeping conflicts registers aligned with evolving business models. Many acknowledged that new structures often require that governance frameworks are refreshed on an ongoing basis.
Peer discussions since the FCA launched its conflicts review last year revealed subtle but important differences in approach. Some firms have embedded dynamic conflicts tracking linked to transaction approval processes. Others rely more heavily on periodic reviews. The divergence itself is instructive, particularly in an environment where supervisory expectations are becoming more granular.
Valuation Governance Is Inseparable from Conflicts Oversight
Valuation practices remain closely linked to conflict management. The FCA’s review last year concluded that while many firms had reasonable processes in place, documentation and evidencing of challenge were often insufficient.
Valuation committees must do more than confirm figures. They must demonstrate robust debate, independence where required, and a clear rationale for judgment calls. Where conflicts intersect with valuation decisions, documentation should clearly evidence how those conflicts were considered and mitigated.
For firms operating complex portfolios, particularly in private credit and real estate, valuation judgment sits at the heart of investor trust. Supervisory interest in this area reflects broader concerns about transparency and fairness across fund structures.
Governance and Recordkeeping Must Evidence a Real Challenge
A recurring supervisory theme is the adequacy of books and records. The regulatory question is no longer whether documentation exists, but whether it genuinely reflects how decisions were reached.
Firms should consider whether committee minutes capture substantive debate, record dissenting views, explain deviations from policy, and clearly document mitigation steps for identified risks.
In a judgement-driven supervisory cycle, incomplete records can undermine even well-considered decisions.
Non-Financial Misconduct Expectations Are Expanding
The extension of conduct rules relating to non-financial misconduct marks a significant development for private markets firms. Bullying, harassment, and similar behaviour will constitute breaches of Conduct Rules for all SM&CR firms, not only banks.
The seriousness threshold has been aligned with the Equality Act standard for harassment. Managers are expected to take reasonable steps when issues come to their attention. Firms are not required to monitor private lives, but serious substantiated findings must be reflected in regulatory references.
This development reinforces the integration between human resources and compliance functions. Firms should ensure procedures can support both employment law requirements and regulatory obligations. Culture is increasingly viewed as a supervisory issue, not merely an internal management concern.
AI Requires Accountable Governance Frameworks
AI is becoming embedded within investment processes, compliance screening, and investor reporting. The regulator has adopted a positive technology stance, but has been clear that existing rules apply.
Firms must be able to explain how AI tools operate, understand their limitations, and demonstrate human oversight of material decisions. Accountability cannot be outsourced.
Third-party risk management, data quality controls, and model governance frameworks are some of the essential components of defensible AI deployment. At the dinner discussion, leaders highlighted the importance of cross-functional collaboration. AI governance cannot sit solely within technology teams. Compliance and risk functions must be involved at the design stage, not after implementation.
Communication Controls and Surveillance Signal Cultural Integrity
Off-channel communications remain a live supervisory concern. Multi-firm reviews have identified breaches involving senior individuals, reinforcing the regulator’s view that communication discipline reflects culture.
Private market firms must ensure that approved communication tools are clearly defined and consistently used. Senior leadership adherence is particularly important.
Market surveillance frameworks must also evolve. For firms holding material non-public information relating to portfolio companies with listed securities, robust information barriers and restricted lists are essential. The FCA has invested in detection capabilities and has highlighted concerns around transaction leaks.
Effective surveillance is therefore both a regulatory safeguard and a reputational imperative.
Operational Resilience and Cyber Readiness Are Foundational
Operational resilience requirements continue to be a live issue. Firms must have identified important business services, mapped dependencies, and tested business continuity and disaster recovery plans.
Cyber resilience remains high on the regulatory agenda. The reported increase in cyber incidents underscores the need for baseline controls, for example, multi-factor authentication, endpoint protection, tested backups, and staff awareness training.
As AI tools and outsourced service providers are integrated into operating models, resilience frameworks must expand accordingly. Supervisory expectations increasingly focus on how firms manage third-party dependencies and incident notification obligations.
Transaction Reporting Reform and Private Credit Risks Are Evolving
The FCA is consulting on significant reforms to transaction reporting obligations, representing the most substantial overhaul since MiFID II. Proposed changes include removing certain derivatives from the scope and avoiding extension to some private markets firms. While this may reduce reporting burdens, firms should monitor developments closely and prepare for system updates once final rules are confirmed.
Private credit and market abuse risks are also gaining attention. Where firms hold non-public information about borrowers with listed securities, controls must ensure appropriate information and team segregation as well as disclosure management. The regulator has noted a high proportion of leaked merger and acquisitions transactions and continues to invest in surveillance capabilities.
Practical Steps Firms Should Take Now
Considering these developments, firms should prioritise the following actions:
- Conduct a comprehensive conflicts framework refresh aligned to current fund structures and transactions.
- Review valuation committee documentation to ensure it evidences challenge and independence.
- Strengthen documentation standards across governance committees to evidence decision-making processes.
- Align HR and compliance processes in preparation for expanded non-financial misconduct obligations.
- Implement a proportionate AI governance framework with defined accountability and oversight.
- Test communication policies and senior leadership adherence in practice.
- Reassess operational resilience mapping, cyber controls, and third-party risk management.
- Benchmark practices against peers to identify structural gaps before the regulator does or supervisory action commences.
A proactive review now is materially less disruptive than reactive remediation following supervisory findings.
Independent Perspective Enhances Supervisory Confidence
One clear message from peer discussions is that firms value structured benchmarking. Understanding how others are interpreting regulatory expectations provides reassurance, but also constructive challenges.
Independent reviews offer similar value. External perspectives can identify blind spots, stress test documentation standards, and enhance credibility during supervisory engagement. In a cycle defined by supervisory judgement, demonstrable independent challenges can meaningfully influence regulatory outcomes.
Integrated Governance Risk and Compliance Support
The themes outlined above are closely intertwined. For example, effective valuation practices require active conflicts of interest management, while technological capabilities determine the quality and reliability of surveillance. Organisational culture directly impacts behaviours, which in turn drive conduct risk.
Each of these areas is underpinned by a clear need for strong documentation, which provides the foundation that supports an effective compliance framework. Addressing these areas in isolation is rarely effective, particularly in a supervisory environment defined by heightened scrutiny and regulatory judgement.
ACA works alongside private markets firms to deliver integrated governance, risk, and compliance support across the full spectrum of supervisory focus. This includes conflicts framework design and refresh, valuation governance and independent oversight, non-financial misconduct implementation, AI governance and technology risk, off-channel communications and surveillance, financial crime and AML controls, transaction reporting, and operational resilience.
If your firm is reviewing its framework ahead of supervisory engagement, reassessing its conflicts infrastructure, or strengthening governance around AI, valuation, or surveillance, we can help. Speak with us to benchmark your approach, identify gaps, and implement practical solutions that stand up to regulatory and investor scrutiny.