Divided Loyalties? Feedback from the UK FCA's Conflicts of Interest Review

Back in October 2025, the UK Financial Conduct Authority (FCA) began a review into how UK private market firms were identifying, managing and mitigating conflicts of interest. The scope of the review focused on fund management, discretionary portfolio management and advisory activities carried out in or from the UK in connection with investment in private equity, private credit or real estate.

In a similar way to the Private Market Valuations Review (PMVR) which was carried out during 2024/25, the conflicts review has been split into two phases: Phase 1 involved a general data collection exercise across the market, while Phase 2 involved direct bilateral engagement with selected firms.

On 23 October 2026, the FCA published the feedback from the conflicts review, the headline points of which are summarised below.

This feedback will be directly relevant to UK private market firms, but as the FCA notes, other firms should also take account of its conclusions, as the issues identified may have broader relevance to how UK asset managers identify and address potential conflicts within their businesses. As the FCA will be carrying out follow-up work in this area, this should be a key priority throughout the remainder of 2026 and H1 2027.

We understand that individual firms which formed part of the FCA's Phase 2 engagement exercise will receive direct feedback letters, which they should review carefully. Based on our experience of the PMVR, these letters may contain additional requirements beyond those set out in the general public feedback, and firms are normally expected to confirm to the FCA the actions they have taken in response to the relevant points. If firms receive private observations which they consider go beyond the substantive issues raised in the public feedback document, they may wish to consider whether to raise these with industry associations for further discussion with the FCA.

Now Reading

Summary of key points in the feedback

Firms should ensure that they read the feedback in detail and consider how it applies to their operational set-up. However, by way of a brief summary, the FCA highlights three particular areas of concern in the introduction to the feedback:

Continuation vehicles and transfers between funds: The potential for conflicts to arise in the use of continuation vehicles is well understood in the industry, but the FCA notes that some firms may be over-reliant on disclosure or investor consent and existing generalised governance processes to address the resulting issues. The regulator suggests that firms should be implementing enhanced controls, independent challenge, stricter oversight of valuation of transferred assets, and enhanced investor engagement where a continuation vehicle is proposed. This is a very topical point, as the Institutional Limited Partners Association (ILPA) has very recently published new guidance on the use of these vehicles.
Gifts and entertainment: The FCA considers that good controls in this area involve the setting of clearly defined standards, robust record keeping, active oversight of compliance with the relevant requirements, and monitoring of patterns and trends. Conversely, the regulator criticises over-reliance on policy thresholds and general approvals, without active oversight and management of the potential issues. There is an extensive section in the feedback specifically dedicated to gifts and entertainment and how they may result in actual or perceived personal conflicts, indicating the importance that the FCA attaches to this issue. In particular, the FCA notes that record keeping in this area is often poor and many firms struggled to demonstrate how their policies operated effectively. In its view, records should capture not only the value of the gift or entertainment received, but also the potential conflict considerations relating to it and the rationale for any approval given. The regulator considers that it is also good practice to record benefits offered but not accepted, and situations in which the firm has paid from its own resources rather than accepting hospitality offered. The FCA has particular concerns about high-value sporting or other hospitality events in this context.
Information barriers: The FCA notes that effective control of confidential information involves information barriers being implemented through a combination of physical, organisational and systems-based restrictions. In addition, the regulator considers that firms should be actively shared within their organisation. The FCA is concerned that some firms rely excessively on individual staff judgement, general training and other informal safeguards, without being able to demonstrate how confidential information is secured and controlled. This is particularly important where the firm may be operating competing business lines or acting for different groups whose interests may conflict.

A range of other key points raised by the FCA is set out below. However, firms should note that these are not expressed as mandatory requirements for all firms, but rather as areas of potential good practice or weaknesses observed during the review. Firms will therefore need to consider their specific business and operations when determining how these observations apply in their individual contexts.

Not "one-size-fits-all": Conflicts frameworks should reflect each firm's strategies, group structure, investment vehicles and investor base. Greater business or ownership complexity requires more sophisticated controls, governance and escalation arrangements.
Substance over form: Firms providing purely advisory services to overseas managers should assess the substance of their activities, not just their legal form. A UK adviser involved in key lifecycle activities may face heightened conflict risks even where the overseas manager makes the formal investment decision.
Conflicts throughout the investment lifecycle: Firms should identify and manage conflicts throughout the investment lifecycle, including through initial deal screening, clear allocation frameworks, and controls for connected-party transactions and use of continuation vehicles. They should also assess side letters, preferential rights and most-favoured nation clauses, considering their cumulative impact on other investors rather than relying on disclosure alone as a means of addressing the potential conflicts.
Over-reliance on disclosure: Disclosure should supplement, not replace, conflict management. Firms should first seek to avoid conflicts and apply other mitigants before relying on disclosure.
Governance and oversight: Strong conflicts frameworks involved clearly defined governance structures and typically included a conflicts committee with a clear mandate to review the effectiveness of conflicts arrangements within the firm. The work of a central conflicts committee can be delegated to working groups or sub-committees, provided that there are effective reporting arrangements in place and clearly defined triggers for escalation of material issues back to the main committee. It is good practice for the firm to ensure that all key functions within the first and second lines are represented on the committee.
International groups: International groups should operate conflicts governance at both group and UK levels, ensuring that issues material to the UK firm remain under the oversight of UK-based senior managers.
Responsibility for identification and escalation: Responsibility for identifying conflicts should be embedded across all three lines of defence, supported by training and clear escalation routes. Identification of conflicts should be a continuing process throughout the investment lifecycle, not assigned to one line of defence only or treated as a one-off exercise.
Use of the second line of defence: Where compliance provides real-time challenge on conflicts, firms should preserve the independence of post-event assurance by the compliance function. Stronger frameworks therefore separated compliance staff involved in live reviews from those conducting subsequent independent assessment of decisions taken.
Use of limited partner advisory committees (LPACs): LPAC engagement varies in quality and an LPAC's ability to resolve conflict issues may be affected if its membership is not sufficiently representative, such as where membership is limited to the largest investors. Firms should also apply clear and consistent criteria for referring conflicts to an LPAC, rather than exercising discretion inconsistently.
Data and management information: Strong systems bring together transaction analysis, firm-level relationship and personal-conflict data, often with automated checks. This supports effective management information and oversight.
The importance of clear, specific procedures: Maintaining a conflicts register alone is insufficient to address conflicts adequately. Firms should maintain procedures for specific risks, such as opportunity allocation, different vehicles investing in the same issuer's debt and equity, and inter-vehicle transfers, with tailored escalation triggers and clear responsibilities across all three lines of defence.
Record keeping: Firms should retain clear evidence of conflict-related actions, decisions and rationales, including high-quality investment committee minutes. Real-time monitoring software can improve auditability, while fragmented manual records make oversight harder to demonstrate, but the FCA notes that what is appropriate here will depend on the firm's size and complexity.
Training: Training should explain how conflicts arise in the specific context of the firm's business and how staff must report them. Firms should provide onboarding and refresher training, retain completion records and use practical, role-specific case studies rather than generic computer-based modules.

What should firms do now?

All UK private market firms should read the FCA's feedback document and benchmark its observations against their internal approach to identifying and managing conflicts. Given that these issues are likely to be a continuing area of focus for the regulator, where potential weaknesses are identified, firms should ensure that they have a clear remediation plan in place to resolve these over a reasonable timescale.

The FCA has stated that it will be doing targeted follow-up activities with firms and ongoing engagement with industry associations following the publication of the feedback.

How Travers Smith can help

We have been advising a range of firms on their engagement with the FCA during Phase 1 and Phase 2 of the conflicts review. We also have extensive experience of advising firms throughout all stages of the previous PMVR exercise, including assisting firms in responding to the FCA's direct feedback letters.

We have a range of materials which firms can use to review their existing conflicts arrangements and can help firms design and carry out internal reviews and gap analyses, as well as assisting in resolving any identified issues.

If you would like to explore how we can help your organisation respond to the FCA's conflicts of interest feedback, please get in touch with one of the individuals named below or your usual Travers Smith contact.

Read Tim Lewis Profile