FCA portfolio letter sets out its 2025 strategy for supervising asset managers and alternatives

The FCA has today issued a Dear CEO letter to firms in the Asset Management & Alternatives portfolio setting out its supervisory priorities for 2025. The letter also notes that the FCA will engage with industry on a review of UK AIFMD “this year” with a view to streamlining regulatory requirements.  

The FCA explains that it will focus its supervision on three primary, and overall five, priorities.  Key messages are set out below:

Supporting confident investing in private markets

• Firms should consider the FCA’s findings from its multi-firm review on Private Market Valuation Practices, which will be released shortly, to ensure their valuation processes are robust, with a strong governance framework and audit trail. The FCA also expects boards and valuation committees to be given regular, sufficient information on valuations to ensure effective oversight.  Firms will also see the FCA contributing to the International Organization of Securities Commissions (“IOSCO”) revision of its 2013 Principles for the Valuation of Collective Investment Schemes.
• In 2025, the FCA will start a multi-firm review focusing on conflicts of interest at firms managing private assets. The review will assess how firms oversee application of their conflict-of-interest framework through governance bodies and reviews by the three lines of defence, to ensure investor outcomes are not compromised. The FCA expects to see evolving and updated procedures to identify, manage and mitigate conflicts of interest.
• The FCA will continue to supervise the sector’s transition to retail offers of private market products.  A key focus is on ensuring investors have the right information about private market products.  Consumer Duty is also a focus, and the FCA notes that many firms are taking additional steps to understand distribution chains to retail clients to ensure they deliver good outcomes for their products’ end-investors in order to meet Consumer Duty expectations - the FCA will continue its focus here too.

Building firm and financial system resilience against market disruption

• Informed by the vulnerabilities identified in the FCA’s and Bank of England’s System Wide Exploratory Scenario (SWES) report, the FCA will focus surveillance on prudent risk management, liquidity management and operational resilience.
• The FCA will continue its data-led approach to identify outlier firms and funds to seek assurances about risk management. It will focus particularly on those with high leverage, illiquidity or concentrated investment strategies.
• The FCA warns that operational frictions can limit firms’ abilities to react to market disruption, so firms should consider the resilience and effectiveness of their operational processes and collateral management practices, including their oversight of third parties where services are outsourced.

Securing positive outcomes for consumers 

• Under the Consumer Duty, firms should continue to develop their monitoring capabilities to assure themselves they are delivering good consumer outcomes.
• The FCA plan to publish its findings from its multi-firm review of unit-linked funds later in 2025.
• In 2025, the FCA will start a multi-firm review of model portfolio services (MPS) looking at how firms are applying the Consumer Duty, so as to provide confidence that investors are receiving good outcomes from MPS and share good practice on how firms are doing this.

In addition, the letter also notes that in the context of Sustainable Finance the FCA will engage with firms with sustainability-related products to understand how they are implementing the labelling, naming and marketing rules. On Finance Crime and Market Abuse, the FCA also urges firms to be alert to the risk they could be used to facilitate financial crime (using appropriate and proportionate systems and controls to mitigate the risk – with the FCA highlighting the importance of identifying beneficial owners) and that it expects firms to ensure their market abuse controls enable them to discharge obligations under the Market Abuse Regulation.

Next steps
Chief Executives are expected to discuss the contents of the letter with their Board, Executive Committee and accountable Senior Managers to consider whether the risks of harm exist and implement strategies for managing them.

The letter dated 26 February 2025 is available here.