FCA Targets Private Markets as Scrutiny Intensifies

The Financial Conduct Authority has launched at least two enforcement investigations into private markets firms, marking one of the clearest signs yet that regulators are intensifying oversight of a sector that has enjoyed years of rapid growth under a comparatively light regulatory framework.

While the FCA has not disclosed details of the cases, the investigations could ultimately result in sanctions ranging from fines and public censures to bans on individuals or firms.

The existence of the probes emerged through Freedom of Information requests and highlights a growing determination among regulators to identify and address risks within private markets.

The investigations come at a time when private equity, private credit, infrastructure, and real estate investment strategies have become increasingly important components of global capital markets.

Assets have flowed into the sector as investors search for higher returns and diversification opportunities, while pension funds and other institutional investors have expanded allocations to unlisted investments.

Historically, private markets firms have operated under a less intensive supervisory regime than banks, largely because they do not accept deposits from consumers or perform the same systemic functions as traditional lenders.

However, the growth of the sector has altered the regulatory landscape.

An increasing number of retail investors are now indirectly exposed to private market assets through pension schemes and investment products.

At the same time, concerns have emerged about valuation methodologies, liquidity risks, conflicts of interest, and the resilience of private credit portfolios in a higher interest rate environment.

The FCA has already demonstrated its growing interest in the sector through a review of private market valuation practices conducted last year.

That exercise focused on potential conflicts of interest and how firms determine the value of assets that do not trade regularly in public markets. The regulator is understood to be reviewing data submitted by firms as part of that process.

The FCA's actions form part of a broader global regulatory push. The Bank of England is currently conducting a system-wide exploratory scenario designed to assess how non-bank financial institutions would perform during periods of severe market stress.

Meanwhile, the Financial Stability Board is undertaking its own review of the rapidly expanding private credit sector amid concerns that risks could accumulate outside the traditional banking system.

Despite growing scrutiny, enforcement action in private markets has remained relatively uncommon.

One of the most prominent recent cases involved BlueCrest, the family office founded by billionaire investor Michael Platt. Last year, the firm agreed to pay $101 million in redress to non-U.S. investors as part of a settlement with the FCA relating to a long-running conflict-of-interest dispute.

Industry observers believe the emergence of new enforcement investigations reflects a significant shift in regulatory priorities.

Ludovic Phalippou, a professor at Oxford University and a long-standing critic of aspects of the private markets industry, welcomed the development. "At last the FCA bothers with private market firms," he said.

While expressing caution about the eventual outcome of the investigations, he added that increased regulatory attention was a positive development.

Others argue that even a small number of enforcement cases should serve as a warning for the industry.

Dan Kemp, former chief research and investment officer at Morningstar and founder of Portfolio Thinking, said the investigations were noteworthy despite the size of the market.

"Although two open enforcement cases in a £1.2tn market may sound insignificant, it is not reassuring," he said.

Kemp warned that problems in private markets often remain hidden during periods of strong performance and rising valuations.

"Misconduct in private markets tends to surface when prices fall and investors try to exit, not while markets are rising," he added.

His comments reflect a broader concern among regulators that risks can be more difficult to identify in opaque markets where assets are infrequently traded and valuations may rely heavily on judgment rather than observable market prices.

The FCA declined to comment on the investigations.