On 26th February 2025, the Financial Conduct Authority (FCA) issued a Portfolio Letter addressing Asset Management & Alternatives firms. Within the letter, the FCA highlighted specific focus areas and risk factors for these firms, underscoring the need for stringent compliance controls to mitigate these risks.
In this blog, we’ll dig into the key areas, as well as how your firm can navigate these regulatory concerns to ensure ongoing compliance.
The Top 7 Takeaways from the FCA Portfolio Letter for Asset Management & Alternatives
Portfolio Letters and Dear CEO Letters provide firms with a clear picture of the FCA’s priorities, intentions, and focus areas. In their most recent letter, the regulator drew attention to several key matters:
1. Supervisory Priorities: The FCA outlined its key supervisory priorities for the year, which include supporting confident investing in private markets, building firm and financial system resilience against market disruption and securing positive outcomes for consumers.
2. Valuation Processes in Private Markets: The FCA emphasised the importance of robust valuation processes in private markets, highlighting the risks associated with judgment-based approaches. The letter notes, “We have undertaken supervisory work to support confident investing in private assets. We will shortly release our multi-firm review on Private Market Valuation Practices.”
3. Market Integrity and Disruption: Firm are advised to implement and continue to invest in appropriate risk management practices to ensure business continuity in the face of disruptive market events. The recent report following the System Wide Exploratory Scenario (SWES) has allowed the FCA to identify focus areas such as prudent risk management, liquidity management and operational resilience.
4. Conflicts of Interest: The FCA notes that “poorly managed conflicts of interest increase the likelihood and severity of investor harm” and so they will launch a review focusing on conflicts of interest at firms managing private assets by assessing “how firms oversee the application of their conflict-of-interest framework through governance bodies and reviews by the three lines of defense, to ensure investor outcomes are not compromised.”
5. Consumer Outcomes: The FCA underscored the importance of delivering good consumer outcomes, particularly under the Consumer Duty. “Firms should continue to develop their monitoring capabilities to assure themselves they are delivering good consumer outcomes.” The FCA plans to release their findings regarding their multi-firm review of unit-linked funds later this year.
6. Sustainable Finance: The FCA wants to continue the emphasis on ESG initiatives and following the introduction of Sustainability Disclosure Requirements (SDR) and Investment Labels regime and the anti-greenwashing rule, the FCA will engage with firms with sustainability-related products to understand how they are implementing the labelling, naming and marketing rules.
7. Financial Crime and Market Abuse: Robust systems and controls to tackle financial crime and market abuse continue to be critical to maintaining trust in the financial market. The FCA “will review the effectiveness of firms’ financial crime systems and controls, with a supervisory focus on anti-money laundering (AML) controls in private markets funds.”
To mitigate the risk of financial crime, firms should have:
- Proportionate and risk-based due diligence on investors;
- Robust Know Your Client (KYC) checks; and
- Appropriate market abuse controls to discharge obligations under MAR.
Navigating FCA Compliance in 2025
Within the final sentences of their letter, the FCA directly mandates that firms assess the scope of risks listed above and take the necessary steps to ensure the appropriate policies, processes and procedures are in place to manage said risks. However, that can be easier said than done, especially for CCOs and compliance professionals already juggling countless other critical tasks.
COMPLY’s compliance consultants have the strategic expertise to not only assess the scope of risk within your firm, but to provide the insights, resources and best practices to navigate those risks and enhance your compliance programme.
COMPLY’s offerings include:
- Compliance Services Retainer brings a dedicated compliance consultant to your team all year-round.
- Compliance Health Check involves a one-off review of your manuals, policies and processes to better understand the strengths and weaknesses of your programme.
- Bespoke Regulatory Services provides custom consulting engagements, allowing you to create a consulting package to meet your exact needs, whether that be for an ongoing engagement or a one-time project.
Compliance is demanding. But the good news? You don’t have to do it alone.
Ready to learn more about COMPLY’s consulting offerings and how we can best support your team as you navigate this (and future) FCA priorities? Let’s talk.