A call to action for asset management and alternatives firms – the FCA’s latest Dear CEO letter

Yesterday, the FCA published its latest Dear CEO letter which is addressed to those active in the asset management and alternatives sectors.

The current supervisory priorities

The letter refers to the FCA's focus on three current supervisory priorities:

• “securing confident investing in private markets”;
• “building firm and financial system resilience against market disruption”; and
• “securing positive outcomes for consumers”.

Interconnected regulatory issues

The letter also refers to the FCA's ongoing and interconnected work in the areas of:

• Sustainable finance: The sector must adapt and evolve to meet the demands for sustainable investment opportunities. The recently introduced Sustainability Disclosure Requirements and Investment Labeling Regime specifically aim at building investor trust and confidence in this market. The FCA states that it will be engaging with firms operating in this space with a view to ensuring that products marketed as sustainable are what they claim to be. The FCA has been proactive in delivering examples of good practice and will expect firms to reflect on these and implement positive changes in response. The FCA can be expected to identify and engage with outliers.
• Financial crime and Market abuse: Financial crime and market abuse “undermine confidence in, and the integrity of, financial markets”. The letter refers to the need for firms to be cognisant of the increased financial crime risks relating to investment in private assets and the requirement to implement “appropriate and proportionate systems and controls” to mitigate these risks. The letter notes that robust systems will be needed around complex ownership structures to ensure the identification of ultimate beneficial owners. Relative to the risks of market abuse, firms will be expected to have robust systems and controls in place, and to be able to discharge their obligations under the Market Abuse Regulation.
• Supporting growth: The FCA refers to its secondary growth objective and to its wish to develop a growth plan for this “priority sector”. Asset management is an important part of the UK's economy and forms a central pillar of the government's growth agenda. The letter refers to there being circa 2,500 firms operating in “public and private markets, offering fund management, discretionary investment management, and advisory services” and notes growth over the last year in private credit and infrastructure, and in products and services, with exchange traded funds and model portfolio services being specifically noted. The FCA states an intention to drive initiatives to streamline the regulatory burden, to work to support investment in private assets and digital innovation, and to drive engagement with initiatives that could unlock capital investment and liquidity. 

Looking at the three focus supervisory priorities in closer detail:

Private markets:

The letter highlights the position that the UK occupies as a significant European centre for private fund management and notes that its private markets have enjoyed growth over recent years with increasing numbers of asset managers investing in them. The letter specifically notes the risks associated with private asset valuations and the challenge of ensuring that investors can obtain “fair and appropriate valuations” in order to make informed investment decisions and to understand how investments that are made then go on to perform. The letter also refers to the risks associated with “poorly managed conflicts of interest” and the likelihood of these causing investor harms. Further regulatory work is expected in this area (see below in the section “Watch this space”) during the course of this year. 

Operational resilience

The letter notes the ongoing volatility of the geopolitical environment and the importance of asset management and alternatives firms managing their responses to the ever-changing challenges. It also notes the growing interconnectivity of the sector and the increasing reliance of firms on third parties. In this context, the importance of “robust operational resilience” is underscored in the context of recent market disruptions. The FCA regards good governance and healthy culture as critical to ensuring good outcomes, particularly during periods of uncertainty, and will continue to focus on ensuring effective governance and robust senior accountability. Firms will also be expected to improve risk management including stress testing, contingency planning and liquidity management, and should expect the FCA to be on the lookout for vulnerabilities and outliers.

Consumers

Whilst there are currently limited opportunities for retail investors in the private asset space, it is expected that this will change and that there will be a move to offer a variety of suitable private market products to retail investors. Firms looking at developing products aimed at retail investors will need to address the regulatory expectations around the Consumer Duty and ensure that they can deliver good outcomes to these investors. 

Watch this space

Important regulatory output is awaited from the FCA in a number of related areas:

• Multi-firm review on Private Market Valuation Practices: the findings of this review are expected soon and firms active in the private markets will need to consider the findings carefully to self-reflect and ensure that their valuation processes, governance frameworks and audit functions, meet regulatory expectations.
• Multi-firm review of conflicts of interest in firms managing private assets: this review is expected to commence this year and will focus on firm's oversight of conflicts of interest, governance structures, and investor outcomes. 
• Multi-firm review of unit-linked funds: the findings of this review into price and value in the unit-linked funds sector, with the intention of ensuring good outcomes for investors, are expected later this year.
• Multi-firm review of model portfolio services: this review is expected to commence this year and will focus on how firms active in this space are applying the Consumer Duty, resulting in the sharing of good practice and building confidence that the investors in these portfolios are receiving good outcomes.
• Advice-Guidance Boundary Review: further output is expected from this review and could help to unlock the potential for consumers to achieve better outcomes from their savings and investments.
• Consumer Composite Investments consultation: this consultation aims to drive improvements to product disclosures, removing confusion and information overload, and promoting a simplified regime that prioritises good consumer outcomes.

Firms will be expected to reflect on the content of this Dear CEO letter and to consider whether any of the risks of harm referred to are relevant to them. If you wish to discuss the content of this Dear CEO letter, then please contact one of our financial services regulatory experts. We will be watching developments in this space with interest. A good way to ensure that you do not miss out on a key update is to sign up to our regular financial services regulation newsletter, and you can do that by clicking here. 

We are writing to firms in this sector to explain our current supervision priorities. This letter helps meet our public commitment to rigorously prioritise resources in line with our approach to supervision and to support firms to understand these priorities

https://www.fca.org.uk/publication/correspondence/asset-management-alternatives-portfolio-letter-2025.pdf