FCA Portfolio Letter to Asset Managers: Priorities for 2025

On Wednesday (26 February 2025), the FCA published a portfolio letter setting out its current supervision priorities for firms in the asset management and alternatives sector.

What are the FCA’s focus areas for the year?

The FCA referred to three key focus areas for 2025.

Supporting confident investing in private markets, and in particular the FCA referred to:

• Valuations: Firms operating in the private markets must have robust valuation procedures in place. The FCA will soon release a multi-firm review on Private Market Valuation Practices. Firms should consider the report’s findings to ensure that their valuation processes are robust, with a strong governance framework and audit trail.
• Conflicts: Firms must manage conflicts of interest effectively, especially where there are competing business lines and the FCA specifically called out continuation vehicles, co-investment opportunities and partnering with other financial institutions. It will launch a multi-firm review on conflicts this year.
• Retail product development: The FCA acknowledges that there is increasing demand for access to the private markets by retail investors. Firms will need to monitor and consider whether their product development frameworks are suitable for the more complex retail landscape. This includes having sufficient transparency and disclosure for investors on private market products and understanding the distribution channels, which are more complex than those used for institutional investors. 

Building firm and financial system resilience against market disruption

• Findings from the System Wide Explanatory Scenario published by the FCA and the Bank of England noted some persistent risks and vulnerabilities in the financial system susceptible to disruptive market events.
• The FCA will focus surveillance on effective risk management, liquidity management and operational resilience by firms to address these vulnerabilities.
• Particular focus will be on firms with high leverage, illiquidity, or concentrated investment strategies.

Securing positive outcomes for consumers

• Later this year, the FCA plans to publish findings from a multi-firm review of unit-linked funds to ensure good outcomes are being delivered for retail consumers.
• The FCA will also initiate a multi-firm review of model portfolio services to assess how firms are applying the Consumer Duty and offer good practice examples.

What else is on the FCA’s radar?

In addition to the above, the FCA also raised several other topics, including:

Good Governance and Culture

• Consistent with the FCA’s repeated messaging on the topic, the FCA recognises that good governance and culture is key to ensuring good outcomes during periods of change and increased oversight, such as those outlined above.
• The FCA will continue its focus on assessing how effectively firms’ governance arrangements assign senior accountability for the risks identified above and ensure oversight by governance bodies.

Sustainable Finance

The FCA will engage with firms with sustainability-related products to ensure that such firms are implementing the labelling, naming and marketing rules, in line with the FCA’s continued focus on sustainable investing and anti-greenwashing.

Financial Crime and Market Abuse

The FCA will review the effectiveness of firms’ financial crime systems and controls, with a supervisory focus on anti-money laundering controls in private markets funds.

UK AIFMD

The FCA will review UK AIFMD this year. 

What should fund managers be doing now?

The FCA acknowledges that the issues above may not be relevant to all firms in receipt of this letter. However, the FCA expects CEOs of the targeted firms to discuss the letter with their Board, Executive Committee and accountable Senior Managers. Firms should consider whether the risks of harm addressed in the letter exist internally and implement strategies to manage them if so.

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