UK FCA findings on conflicts of interest and fair customer treatment in private markets

The UK Financial Conduct Authority (FCA) has published the findings of its multi-firm review of how private market firms identify, manage, mitigate and disclose conflicts of interest. While the review focused on private equity, private credit and real estate firms, many of the observations may also be relevant to firms operating in other areas.

The FCA found that many firms demonstrated effective governance, strong conflict identification processes and a clear focus on investor outcomes. However, standards varied considerably. The FCA highlighted recurring weaknesses in the following areas:

• Cross-fund transfers and continuation transactions: weaker firms relied more heavily on existing governance, disclosure or investor consent. There was limited evidence of how they had assessed and balanced competing investor interests.
• Gifts and entertainment: some firms relied on policy thresholds and generic approvals, and there was limited evidence that firms were effectively identifying and managing conflicts or inducement risks.
• Information barriers: some firms relied more heavily on training, judgement and informal safeguards, with limited monitoring to demonstrate that confidential information was being effectively contained.

The FCA expects firms to consider its findings to identify gaps in their approaches. Firms should assess whether their conflicts frameworks, governance and controls remain proportionate to the nature, scale and complexity of their activities, and consider whether conflicts can be reduced or avoided through business model and structure design. The FCA also states that firms should treat conflicts management as "a dynamic capability" that develops alongside the business, rather than a "static compliance framework". The FCA will carry out targeted follow-up work where appropriate.

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