FCA published its latest Portfolio Letter for asset managers and alternatives on 26 February 2025. Against a challenging and volatile backdrop, the FCA is focusing on specific supervisory priorities, which firms and Boards must engage with. These include new areas of focus, complementing the broader growth agenda. The FCA will also assess how firms have engaged with key regulatory initiatives such as Consumer Duty, operational resilience and the Sustainability Disclosure Requirements (SDR).
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What does this mean?
The focus on private markets (PMs) was stark in the letter, stemming from the growth in PMs. The FCA will shortly release the results of its multi-firm review on PM valuation practices, given the inherently less liquid nature of the assets.
The regulator also announced a new multi-firm thematic review on conflicts of interest in PMs, looking at governance and the roles of the three lines of defence. Given the FCA highlighted that some firms are already carefully considering retail access to private assets, in line with their Consumer Duty obligations, the implication is that all firms should be doing this, if not already.
The second new area of focus builds on the need for resilience in volatile conditions, and the recent Bank of England/FCA System wide exploratory scenario findings, and the potential impact of non-bank financial institutions. The FCA highlights prudent risk management, liquidity management and operational resilience, and oversight of outsourcing to third parties, plus margin preparedness and collateral management practices.
The FCA also explicitly calls out Consumer Duty, in the context of ongoing work on value across the value chain for unit-linked funds, where results are due later this year, and on a new area of Model Portfolio Services, where a new multi-firm review is announced.
In addition, the regulator announced targeted work in sustainable finance - assessing firms and identifying outliers in the implementation of the labelling, naming and marketing rules. The FCA also notes that PM activity may require commensurate risk management to tackle financial crime risks related to complex ownership structures, and the importance of MAR obligations.
Elsewhere, the FCA references the broad range of existing work, such as the Advice Guidance Boundary Review, and the new Consumer Composite Investments disclosure frameworks, which will contribute to a busy year for firms.
What do firms need to do?
Review and assess against each area of focus in the letter.
Ensure Board and Senior Management level engagement and clear accountability across all areas, with documented Board discussion and challenge.
Consider the impact of accessing PMs in the widest sense - thinking about impact on end consumers, risk management and valuations.
As with all Portfolio Letters, firms must consider each area in turn. The FCA specifically called out the role of the Board and SMF holders who are accountable for these areas of work. Boards will therefore be expected to engage with the letter, and undertake reviews of their own operations against the letter’s themes, ahead of any supervisory work scheduled for later this year.
With new bodies of work (which will inevitably involve interaction with firms and data requests), plus the results of other thematic reviews to process, firms need to be on top of the agenda. It was also striking that the FCA so clearly linked through ‘new’ areas of focus, such as private markets, to established measures, such as Consumer Duty. This underlines the evolving nature of regulation, and firms need to be sure they consider issues broadly, taking into account consumer outcomes.
Next steps
The letter is now live, and firms will need to ensure any conversations with the FCA reflect it with immediate effect.
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