What happened
The Financial Conduct Authority published a multi-firm review on 23 October into how private markets firms identify, manage, mitigate and disclose conflicts of interest. The scope covered asset managers, alternative investment fund managers and investment advisers working in private equity, private credit and real estate. The FCA sent questionnaires to a sample of firms, then visited a smaller group to test whether the written framework matched the desk.
The headline finding is not that firms were ignoring conflicts. Many showed effective governance and a clear focus on investor outcomes. The problem is drift. Standards varied considerably, and in several firms the control framework had not grown in step with the business. Firms running more complex models, with multiple fund vintages, continuation vehicles, group affiliates and cross-border structures, were in some cases operating governance designed for a simpler firm.
The FCA named three recurring weaknesses: cross-fund transfers and continuation transactions, gifts and entertainment, and information barriers. In each case the weaker practice leaned on an existing process, a policy threshold or a signed approval, and could not show how competing investor interests had been assessed. On cross-fund deals, some firms relied on the fact that a committee had met rather than evidence that it challenged the valuation.
One finding matters beyond private markets. The FCA looked at firms that describe their UK activity as advisory only because formal investment decisions sit with an overseas entity, and found frameworks scoped to that legal form rather than the substance of what UK staff do. In one case a firm sold an asset from one of its funds to an internal fund at net asset value after receiving external interest it did not pursue, and could not explain either decision.
Why this is a GRC story
A conflicts framework is a maintenance obligation, not a project. Every framework in the review was fit for the firm that wrote it. The gap opened later, when the firm added a strategy, an acquisition or a group affiliate. Documents with no named owner and no review trigger are the mechanism by which that happens, and the FCA expects conflicts management to develop alongside the business.
Legal form is not a defence. This is the most portable lesson in the paper. If the entity chart says one thing and the staff do another, the regulator will assess the substance. Advisers, delegated functions and group service companies attract the same reasoning, and a framework that stops at the regulated entity leaves the conflicted activity unmanaged.
Documentation is evidence, not decoration. Several firms held conflicts registers that existed to satisfy an expectation rather than to support decisions. The difference shows up in the file: whether minutes record challenge, whether an approval states the alternative that was considered, whether an escalation threshold has ever actually been triggered.
What to watch
The FCA said it will carry out targeted follow-up work and keep engaging with firms and industry bodies, which usually means individual letters rather than another thematic paper. Watch whether the substance over form point appears in supervisory correspondence to UK subsidiaries of overseas groups, since that is where the scoping question bites hardest. Continuation vehicles are the other one to track: investor consent and independent valuation work there is the practical test of whether a framework works under pressure.
Attribution: Analysis based on Financial Conduct Authority and related public reporting. This article is original commentary, not a repost of the source material.