FCA finds majority of smaller asset managers are meeting expectations

Written by Jack Gray

13/05/2025

The majority of smaller asset management firms are meeting regulatory expectations, according to a review by the Financial Conduct Authority (FCA).

The regulator’s review of smaller asset managers and alternatives business models aims to help new market entrants, smaller firms, and growing organisations to benchmark appropriate risk management practices and better understand regulatory expectations.

It formed part of the FCA’s plans to focus on smaller firms to identify business models that were posing greater risks of harm to consumers, and covered 410 firms with assets under management of less than £1bn.

The FCA’s findings focused on three areas: high-risk investments (HRI), conflicts of interest, and the Consumer Duty.

It found that most firms offering HRIs were able to clearly categorise their products, although some asset managers did not have sufficient processes in place to make sure HRIs were only sold to clients if they were appropriate.

While the FCA highlighted good conflicts of interest practices at some firms, many others were found to have ineffective conflict management arrangements.

This included smaller firms where senior staff had more than one role that failed to recognise conflicts from their overlapping responsibilities to ensure that, where conflicts cannot be avoided, they were documented, reviewed, and disclosed where required.

Finally, the FCA found that most smaller asset managers were making good progress in embedding the Consumer Duty in their activities.

However, it stated that some firms still need to understand how Consumer Duty applies to their business model, as they had not adjusted their processes yet.

The regulator is continuing to work with firms to make improvements and will continue to monitor their conduct.

“For firms seeking to grow their private markets offerings, assessing capabilities, oversight frameworks and controls is essential to enable confident customer investment in this growing asset class, aligning with our 2025 review,” the FCA concluded.

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