Private Market Conflict Controls Have Not Kept Pace With Growth

What's New

Conflicts controls at many UK private market firms have not grown with their business models. The FCA reached that conclusion in its multi-firm review of conflicts of interest in private markets, covering private equity, private credit and real estate managers. Firms with the most complex structures did not always run the strongest controls. Some focused, single-strategy firms outperformed them. Managers adding funds, strategies or affiliates should test whether their conflicts framework still matches what the business does today.

Why It Matters

The finding lands hardest on multi-strategy managers and firms inside bank and insurance groups. Many assume group compliance covers private markets activity. The FCA found repurposed group policies that were not always tailored to private markets risk. It also challenged firms that label UK teams as advisory because overseas entities make final decisions. Where UK staff run origination, allocation or valuation, the regulator expects the conflicts framework to cover that work.

By The Numbers

• 52% of phase 1 firms said internal audit had a role in reviewing the conflicts framework.

• 2 review phases. A questionnaire across business models and firm sizes came first, followed by on-site visits that tested practice.

• 3 recurring weakness areas: cross-fund and continuation transactions, gifts and entertainment, and information barriers.

• 1 firm sold an asset to an internal fund at NAV after external buyers showed interest, and could not explain why.

What Changes

The FCA set no deadline. It plans targeted follow-up work and further talks with firms on gifts and entertainment. Firms should expect scrutiny in five areas:

• Continuation and cross-fund deals need separate buy-side and sell-side decision-makers. Shared valuations and overlapping committee membership drew criticism.

• Conflict screening should start before NDAs are signed.

• Gifts and entertainment: registers should record business purpose, valuation basis and cumulative exposure to each relationship.

• Information barriers need system permissions and active compliance monitoring. Training and informal zoning fall short.

• The FCA treats disclosure and LPAC consent as supplementary controls. Firms that lean on them as the main safeguard face questions.

The Wrap

Conflicts management is now a capability that has to grow with each new fund, strategy and affiliate. Firms that build integrated conflict systems and independent second-line oversight as they expand will meet the FCA's expectations with little rework. The argument weakens for small single-strategy managers, where the FCA accepted simpler systems. Firms adding evergreen vehicles, continuation funds or wider investor access without upgrading controls carry the most exposure through 2027.