FCA’s 2025 Spotlight: Preparing for a Year of Scrutiny in Asset Management
The Financial Conduct Authority (FCA) has made it clear that 2025 will be a year of intensified scrutiny for asset management and alternative investment firms. The Asset Management & Alternatives Portfolio Letter, published yesterday, outlines the FCA’s supervisory priorities and the specific multi-firm reviews, thematic work, and policy initiatives it will undertake. Firms should expect deep regulatory engagement across key risk areas, including private market valuations, conflicts of interest, operational resilience, consumer outcomes, sustainable finance, and financial crime prevention.
To ensure firms are prepared, we have drafted a blog summarising the FCA’s planned activities for 2025, alongside key questions firms should ask themselves to assess their regulatory alignment ahead of possible FCA engagement.
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Key FCA Areas of Focus in 2025
The FCA’s supervisory work for 2025 is centred on key risk areas that it believes pose the most significant threats to market integrity, investor protection, and financial stability. These include:
Private Markets
The rapid expansion of private markets has heightened concerns about opaque valuation methods, potential conflicts of interest, and liquidity risks. The FCA is reviewing how firms manage these challenges to ensure fair treatment of investors and accurate pricing of assets.
They will soon publish they multi-firm review on Private Market Valuation Practices, providing guidance on strengthening valuation processes, governance frameworks, and audit trails. Additionally, a multi-firm review into conflicts of interest at firms managing private assets will be launched, examining how governance bodies oversee conflicts and whether existing frameworks are effective.
Key Questions for Firms:
How do we ensure that our valuation methodologies for private assets are transparent, well-documented, and defensible?
What governance framework do we have in place to oversee conflicts of interest, and how effectively is it operating?
In what ways are our conflict-management procedures evolving to address the increasing complexity of private markets?
Market Integrity & Resilience
In an era marked by global market volatility and geopolitical events, the FCA underscores the imperative for firms to bolster their operational resilience. This involves ensuring that operational processes and collateral management practices are robust, with particular attention to the oversight of third-party service providers. The interconnectedness of the financial sector necessitates that firms proactively identify vulnerabilities and implement strategies to mitigate potential disruptions, thereby safeguarding both the firm and the broader financial system.
They have stated their intent to intensify supervisory focus on liquidity risk management, drawing on findings from the System Wide Exploratory Scenario (SWES) exercise conducted with the Bank of England. They also plan to incorporate insights from the FSB’s final report on Liquidity Preparedness for Margin and Collateral Calls into supervisory discussions with relevant firms to assess their resilience in managing liquidity pressures. Additionally, they will scrutinise firms' operational resilience, with particular emphasis on their ability to handle disruptions and effectively manage risks associated with third-party service providers.
Key Questions for Firms:
How do our stress testing and contingency planning processes incorporate systemic risks identified in the SWES report?
What measures do we have in place to ensure our margin and collateral preparedness frameworks are robust and effective?
How do we oversee third-party service providers to ensure they do not pose operational risks to our business?
Consumer Outcomes
The FCA has placed a strong emphasis on ensuring that Model Portfolio Services (MPS) and similar investment products deliver value and meet the expectations of retail investors. MPS have grown in popularity as an investment solution for financial advisers and wealth managers, but the regulator remains concerned about transparency, suitability, and value for money within these offerings.
They have confirmed they intend to launch a multi-firm review into MPS, assessing how firms meet their Consumer Duty obligations. They will also publish findings from the ongoing multi-firm review on unit-linked funds, evaluating pricing structures and value assessments across the distribution chain. Finally, they will engage firms on forthcoming regulatory changes, including proposals for the new Consumer Composite Investments (CCI) regime and the outcomes of the Advice-Guidance Boundary Review (AGBR).
Key Questions for Firms:
How do we assess whether our MPS offerings deliver demonstrable value for money, with transparent pricing and clear suitability criteria?
What processes do we use to monitor and evaluate consumer outcomes in unit-linked funds and other retail investment products?
How are we preparing for the disclosure changes under the CCI regime, and what steps remain to be taken?
Sustainable Finance
With increasing demand for sustainability-related financial products, the FCA is working to ensure sustainability claims are credible, transparent, and not misleading. Compliance with the new Sustainability Disclosure Requirements (SDR) is a key priority, following an uptick in the number of asset managers taking up the sustainability labels in the past few months. The regulator has advised they intend to engage with firms offering sustainability-related products to ensure compliance with the new SDR and anti-greenwashing rules.
Key Questions for Firms:
How do we ensure that our sustainability investment labels and disclosures comply with the FCA’s SDR and marketing rules?
What adjustments have we made to our governance processes to fully embed SDR-related obligations across our operations?
What controls do we have in place to validate sustainability claims and mitigate the risk of greenwashing?
Financial Crime & Market Abuse
The FCA is intensifying its supervision of anti-money laundering (AML) controls and market abuse monitoring, particularly in alternative investments and private markets. They plan to review the effectiveness of AML controls in private market funds, with a particular focus on Know Your Client (KYC) checks and ultimate beneficial owner (UBO) identification to ensure compliance with financial crime regulations. Additionally, firms should prepare for increased supervisory scrutiny on Market Abuse Regulation (MAR) compliance, as oversight of market abuse detection and prevention systems is strengthened.
Key Questions for Firms:
How do we assess whether our AML controls are proportionate to the risks associated with private market investments?
What mechanisms do we use to ensure our market abuse surveillance systems effectively identify and mitigate risks?
Conclusion
The FCA’s 2025 supervisory agenda signals a year of increased regulatory scrutiny, with multiple multi-firm reviews, industry engagement, and enhanced supervisory monitoring. Asset managers and alternatives firms should act now to evaluate their governance frameworks, enhance risk controls, and align with the FCA’s heightened expectations.
Firms that proactively engage with these themes will be better positioned to navigate upcoming regulatory scrutiny and strengthen their long-term resilience in an evolving market landscape.