The Financial Conduct Authority (FCA) has told private market firms to improve how they manage conflicts of interest after a review found inconsistent standards across the sector.
The regulator’s review of private equity, private credit and real estate firms found examples of good practice, including strong governance and independent challenge.
However, it also identified weaknesses in how some firms identify and manage conflicts, with controls not always keeping pace with the growth and increasing complexity of private markets.
The FCA highlighted recurring issues around cross-fund transfers, gifts and entertainment and information barriers.
Private markets have expanded significantly in recent years, increasing their role in providing capital to businesses and generating returns for investors. The FCA said the sector can also create conflicts that differ from those found in public markets, making effective governance and disclosure important to investor protection.
The regulator said it expects firms to identify, record and disclose conflicts effectively while demonstrating that investors are treated fairly.
This is particularly important in areas where investors rely heavily on firms’ judgement, governance and controls, the FCA said.
It added that firms should use the findings from its review to assess their own arrangements and consider whether their governance, oversight and conflicts management processes remain appropriate as their businesses develop.
Separately, although outside the scope of the review, the regulator is examining governance and conflicts concerns linked to the use of private credit to fund consumer litigation claims. The FCA said that work includes significant potential risks of harm to investors, consumers and markets.
Michelle Beck, director of wholesale buy-side at the FCA, said: "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.”
