Conflicts of Interest in Private Markets: What the FCA's Review Means for Your Firm
The Financial Conduct Authority (FCA) expects private markets firms to show that their conflicts of interest arrangements have kept pace with the growth and complexity of their business, and its latest review found that this is not always the case. Published on 23 October 2026, the FCA's multi-firm review of conflicts of interest in private markets found good practice across the sector but considerable variation in standards, with recurring weaknesses in cross-fund and continuation transactions, gifts and entertainment, and information barriers.
The review does not introduce new rules. It sets out the FCA's findings and supervisory expectations against existing requirements, and asks asset managers, alternative investment fund managers (AIFMs) and investment advisers in private equity, private credit and real estate to identify gaps in their own approach. The FCA has said it will carry out targeted follow-up work where appropriate, so firms that have grown, added strategies or fund structures, or operate UK advisory entities for overseas decision-makers should consider a proportionate review now.
What Did the FCA Review?
The FCA assessed whether firms' conflicts frameworks and governance were robust enough to identify, manage, mitigate and disclose conflicts of interest, and whether they supported the fair treatment of investors. The scope covered firms managing funds or providing portfolio management or advisory services in the UK involving private equity, private credit and real estate. The FCA notes that many of its observations may also be relevant to firms in other areas of private markets.
Firms were assessed against existing Handbook requirements on conflicts, governance, systems and controls, and disclosure: SYSC 10, COLL 8.5.7, COBS 2.3A.8R, COBS 11.7 and COBS 11.7A. The FCA considered actual, potential and perceived conflicts, including personal conflicts, those driven by business models and operating structures, and those arising across the investment lifecycle from origination through to valuation and exit.
The review was carried out in two phases:
A questionnaire sent to a sample of private markets firms, covering a range of business models, asset classes, ownership structures, delegation models and firm sizes.
On-site visits to a selected group of firms, testing how conflicts were identified, monitored and managed in practice.
It is worth being clear about the status of the document. A multi-firm review records the FCA's observations and examples of stronger and weaker practice; it is not formal guidance and it does not change the rules. It does, however, show how the FCA's supervisors interpret existing obligations, and firms should expect future supervisory engagement to reflect it.
What Are the FCA's Key Findings?
The FCA's starting point is that conflicts are inherent to private markets and are shaped by each firm's business model, investment structures and ownership. Many firms demonstrated effective governance and a clear focus on investor outcomes. However, governance and controls did not always reflect the complexity of the business, and some firms had not developed their frameworks as they grew.
Controls Have Not Always Kept Pace With Complexity
A firm running a small number of closed-end funds with a single strategy faces a narrower range of conflicts than one managing multiple fund vintages, continuation and evergreen vehicles, or investments across different parts of an issuer's capital structure. The FCA found a clear link between business model complexity and inherent conflicts risk, but the firms with the greatest inherent risk were not always the most effective at managing it. Some firms with focused models operated stronger controls than more complex peers.
Ownership also matters. Firms within banking or insurance groups often faced additional sources of conflict, but frequently benefited from more mature governance and stronger second-line oversight. The FCA noted that some had reused group policies without tailoring them to the specific risks of private markets.
Substance Matters More Than Legal Form
This is one of the more significant points for UK entities within international groups. Some firms characterised their UK activities as investment advice because formal investment decisions were taken by overseas entities, and scoped their UK conflicts frameworks narrowly as a result, often focusing mainly on personal conflicts. Yet UK staff were frequently involved in significant parts of the investment lifecycle.
The FCA accepts that these models may be legitimate. It considers good practice, however, to be a framework that reflects the substance of the UK activities and the conflicts arising from them, not merely their legal form. Firms in this position were less able to demonstrate that they had managed the conflicts their UK operations created.
Identifying Conflicts Early and Keeping Records That Prove It
Stronger firms treated conflict identification as an ongoing process rather than a one-off exercise. They ran checks as soon as a transaction was proposed, set reassessment points through due diligence, structuring, allocation, valuation and exit, and often engaged Legal and Compliance before non-disclosure agreements were signed. Integrated systems captured transaction data, enterprise relationships and personal conflicts together. Weaker firms relied on individuals to recognise and escalate conflicts, identified only the most common private markets conflicts, and worked from fragmented systems and spreadsheets.
All firms maintained a conflicts register. In weaker cases, though, the framework was poorly aligned with underlying policies, had not been updated for business changes, or appeared to exist mainly to meet a regulatory expectation. Training ranged from role-specific sessions built around relevant case studies to generic computer-based modules limited to personal conflicts. The FCA recognises that a fully integrated conflicts system is not necessary for every firm, and that sophistication will be relative to size and complexity.
Oversight, Internal Audit and the Limits of Investor Consultation
The firms with the strongest oversight had a committee with clear responsibility for reviewing conflicts arrangements, pre-set escalation triggers, and real-time referral routes for key events such as new deal allocations and transfers between investor pools. Where compliance staff ran conflict-clearance processes in the manner of a control room, better firms kept them separate from the staff providing independent second-line assurance.
Only 52% of firms in phase 1 said internal audit had a role in reviewing the conflicts framework and its application. The FCA also highlighted the limits of Limited Partner Advisory Committees (LPACs): typically only the largest investors are permanently represented, and some firms consulted them only when legally obliged. In the FCA's view, investor consultation should operate alongside strong governance rather than act as the primary mechanism for managing material conflicts.
Cross-Fund Transactions and Continuation Vehicles
Where a firm sits on both sides of a transaction, one set of investors can be harmed through the sale price, timing or terms of a transfer. Better approaches separated buy-side and sell-side decision-makers and used independent valuations and challenge, with LPAC consent or timely disclosure where appropriate. Weaker arrangements relied on existing governance, disclosure or consent, and both sides sometimes used the same valuation and sought approval from the same committee in different sittings.
The FCA described one case of particular concern. A firm received external interest in an asset held by one of its funds but did not pursue it, instead selling the asset to an internal fund at net asset value (NAV). The firm could not explain why it had not pursued the external interest or how the NAV price was in the selling fund's best interests.
Gifts and Entertainment
Every firm reviewed had gifts and entertainment policies, thresholds and reporting, so the FCA's concern was whether firms could show these operated effectively. In some cases hospitality exceeded what the FCA typically sees in public markets, including air travel and high-value sporting events, and the FCA expects firms to be able to explain the rationale. The strongest registers recorded business purpose, the basis of valuation, conflict and inducement considerations and the reason for approval, as well as hospitality offered but declined.
The FCA also expects firms to look at cumulative exposure, since assessing each event in isolation can miss repeated hospitality from the same provider. It has said it anticipates further discussions with firms to understand their practices, which suggests this area is not closed.
Information Barriers, Allocation and Disclosure
Stronger information barriers combined physical, organisational and system-based separation with active compliance monitoring, while weaker ones relied on training, informal zoning and individual judgement. On allocation, stronger firms used predefined criteria, pro-rata methods for oversubscribed opportunities and documented rationale; weaker firms left broad discretion to investment teams. The FCA also expects most-favoured-nation clauses and side letters to sit within the firm's investor fairness framework, with their cumulative effect on other investors assessed.
The FCA's message on disclosure runs through every finding: it is a supplementary control, not a substitute for avoiding, mitigating and managing conflicts. Disclosure worked best when it was event-driven and early enough to influence decisions, rather than tied to quarterly reporting cycles.
What Does the FCA Expect From Firms?
Michelle Beck, the FCA's director of wholesale buy-side, said firms must ensure their management of conflicts keeps pace "with growth in their size and complexity" (FCA press release, 23 October 2026). The review sets out seven expectations, framed as actions firms should consider rather than new requirements. Firms should:
Keep conflict identification responsive to changes in group structure, ownership, products, investment strategies and operating models.
Identify potential, actual and perceived conflicts on a timely basis across the investment lifecycle.
Regularly assess whether governance, oversight and controls remain proportionate to the nature, scale, substance and complexity of their activities.
Maintain controls proportionate to inherent conflict risks, taking account of the substance and complexity of UK activities.
Set clear escalation thresholds, accountable owners and decision-makers for material or complex conflicts.
Provide effective challenge, supported by strong second-line compliance oversight and periodic third-line assurance.
Be able to demonstrate how material conflicts were identified, assessed and addressed fairly and in investors' interests.
The broader theme is that the FCA wants conflicts management treated as a dynamic capability that develops with the business, not a static framework. It also encourages firms to consider whether conflicts can be reduced or avoided through the design of business models, structures and processes. The FCA is clear that not every finding will be relevant to every firm, and that it does not prescribe a particular business model.
In our experience, the gap for many firms is less about whether a conflicts policy exists and more about whether the firm can evidence how individual conflicted decisions were reached.
What Should Firms Do Now
For most firms, the right response is a focused review against the findings rather than a rebuild of the framework. Practical steps include:
Confirm where your activities overlap with the areas the FCA highlights, particularly cross-fund transactions, continuation vehicles, multi-strategy activity and group affiliates.
Carry out a gap analysis against the seven expectations, prioritising areas of higher inherent risk.
For UK advisory entities, test whether the conflicts framework reflects what UK staff actually do across the investment lifecycle.
Refresh the conflicts inventory and register so they reflect current products, strategies and ownership.
Review committee terms of reference, escalation thresholds, the separation of buy-side and sell-side decision-makers, and any heavy reliance on LPAC consent or disclosure.
Strengthen gifts and entertainment records so they show business rationale, valuation basis, conflict considerations and cumulative exposure.
Build conflicts testing into the compliance monitoring plan, and consider whether internal audit or independent assurance covers the framework.
Tailor training to staff roles, using examples relevant to your business.
Allocate senior management responsibility for any remediation and document key decisions and their rationale.
Firms preparing an FCA application as an AIFM or investment adviser should also reflect these expectations in the conflicts framework they submit, since proportionate controls are easier to design at the outset than to retrofit. Our article on improving FCA applications for authorisation covers the wider application process.
Frequently Asked Questions
What did the FCA find in its review of conflicts of interest in private markets?
The FCA found good practice across private equity, private credit and real estate firms, but considerable variation in standards. Recurring weaknesses related to cross-fund and continuation transactions, gifts and entertainment, and information barriers, and some firms' controls had not kept pace with their growth.
Does the FCA's private markets conflicts review introduce new rules?
No. It is a multi-firm review setting out findings and supervisory expectations against existing requirements, including SYSC 10 and relevant COBS and COLL provisions. The FCA expects firms to consider the findings and identify gaps in their approach.
Which firms should read the FCA's review?
It is aimed at asset managers, AIFMs and investment advisers operating in private markets, particularly in private equity, private credit and real estate. The FCA says many observations may also be relevant to firms in other areas of private markets.
What does the FCA mean by substance over legal form?
Some UK firms treated their activities as advisory because investment decisions were taken overseas, and scoped their conflicts frameworks narrowly. The FCA considers good practice to be a framework that reflects what UK staff actually do and the conflicts that creates.
Is disclosing a conflict to investors enough?
No. The FCA expects disclosure to be a supplementary control. Firms should first avoid, mitigate or manage conflicts, and any disclosure should be timely enough to influence decisions.
How Compliance Angle Can Help
Compliance Angle supports investment firms, including AIFMs and investment advisers, in building and testing conflicts of interest arrangements that meet the FCA's expectations. Our support is practical and proportionate, tailored to each firm's business model, permissions, size and regulatory risk. Relevant services include:
compliance gap analyses and regulatory health checks benchmarked against the FCA's findings
conflicts of interest frameworks and policies, including registers, gifts and entertainment and allocation policies, and compliance monitoring plans that test conflicts controls in practice
governance and SM&CR support, including committee structures, escalation routes and senior management responsibilities
compliance training tailored to the conflicts staff are exposed to in their roles
ongoing compliance support for firms that need continuing second-line oversight
FCA authorisation support for firms building a conflicts framework at application stage
If you would like to discuss how the FCA's findings apply to your firm, please contact us or email info@complianceangle.co.uk.
Source: Financial Conduct Authority (FCA), Conflicts of interest and fair customer treatment in private markets, multi-firm review, published 23 October 2026.
