Following the publication of the Financial Conduct Authority (FCA) Review of Private Markets Practices, Ryan McNelley, Managing Director and EMEA Portfolio Valuation Leader and Warren Low, Director, Financial Services Compliance and Regulation and former supervisor at the FCA, advise on the potential ramifications for Kroll clients.
The FCA Review was first announced in March 2024, in the FCA’s Asset Management and Alternatives portfolio letter, following a report from the International Organization of Securities Commissions (IOSCO) from September 2023 that identified valuation as ‘a significant risk’ in private finance sectors.Following interviews with market participants throughout 2024, the FCA review was initially scheduled to be published in December 2024 but after a short delay was published in Spring 2025.
The findings from the FCA can be found here and read the summary of the FCA findings here.
The FCA noted that areas of improvement for firms included:
- Better identification and documentation of potential conflicts of interest in the valuation process
- Increased independence within firms’ own calculation processes
- Enhanced processes for ad hoc valuations in times of market disruption
- Improved levels of transparency and disclosure
Ryan McNelley commented: “The FCA’s Review of Private Market Valuation Practices has been long-awaited by the sector, with some likely caught by surprise when this comprehensive look at how UK managers carry out their valuation function was published this week.”
“The Review findings clearly emphasize independence, governance and oversight – highlighting the role that independent valuation firms play in establishing credible valuations in which investors can take comfort. Amongst the many takeaways is an acknowledgement that the private markets are opaque and benchmarking private investments against public market comparables can be wrought with challenges. Thus, accessing private market data and insight is critical for valuing private investments.”
“A quick browse of daily headlines makes it clear that we are in a world of elevated risk, volatility and uncertainty. As private markets evolve to accommodate an ever-widening spectrum of investors – including retail investors – new and innovative fund structures prompt the need for more robust and independent valuation frameworks.“
“Even managers of closed-ended fund vehicles will be under pressure to enhance their valuation governance practices, since investors in closed-ended fund vehicles make asset allocation and remuneration decisions based on Net Asset Value (NAV) reporting.”
“Kroll is uniquely positioned to assist clients in establishing a credible, independent and robust valuation framework to satisfy not just regulatory concerns, but equally important: investor concerns as well.”
Warren Low added: “Alongside industry, we welcome the additional clarity and guidance the FCA has provided in relation to their expectations for the conduct of firms and individuals involved in private markets. This release dovetails with last week’s ‘Dear CEO’ letter from the FCA, where the regulator announced its intention to follow up this Review of Private Market Valuation Practices with a multi-firm review to assess how private market firms oversee application of their conflict-of-interest framework through their governance and three lines of defence frameworks."
“This speaks to both the regulatory agenda to expand opportunities for retail investors to invest in private assets – and the regulator’s ongoing work on market integrity and disruption. The role and conduct of private markets institutions, their governing bodies and employees have now been placed firmly at the top of the FCA’s supervisory priorities for 2025.”
