The United Kingdom’s Financial Conduct Authority has recently (22 July 2026) published its review of financial crime controls across 242 asset management and alternatives firms. The findings reinforce themes from the FCA's February 2025 portfolio letter, which identified anti-money laundering controls in private markets as a supervisory priority.
If you are a UK manager of, or adviser to, a private real estate or private equity fund, you may be surprised by the FCA’s findings. After all, these funds are typically highly illiquid and involve commitments from a limited number of sophisticated investors who are often known to the manager / adviser for many years and in relation to whom extensive due diligence would have been conducted before they were accepted as investors. The financial crime risks associated with fund structures are also clearly articulated in the Joint Money Laundering Steering Group Guidance:
“13.7 Investors invest in a private equity fund for the long term and the timing of any return of capital is unpredictable. Minimum commitment sizes are usually very substantial and commitments are drawn down as required over the investment period of a fund at relatively short notice. This form of investment is also very illiquid with a limited ready market. Redemptions, withdrawals and transfers of interests in a partnership can take place, but usually only after the parties have conducted detailed due diligence and usually only with the specific approval of the fund’s general partner or manager (and in some funds only after a minimum initial investment period). Payments/repayments would also only tend to be made to the fund investor itself (any payment to a third party would usually only be made with the express consent of the general partner or manager of the fund and the registered investor).
13.8 For the reasons stated in paragraph 13.7 above, an investment into a private equity fund would normally be considered to be a low risk product.”
Despite this helpful guidance the FCA’s recent findings are still relevant. Private real estate and private equity funds are just a subset of the “asset management and alternative firms” sector, but there are clear common-sense points which emerge, not just in relation to investor KYC and AML risks, but also, importantly, in relation to transactional KYC and AML risks. It is also clear that the FCA intends to use the information collected through its questionnaire to target future supervision and intervene where managers / advisers fall short.
Why the FCA Considers That Private Markets Present Heightened Risks
The FCA identified three characteristics that are particularly prominent among private markets firms:
- Complex ownership structures: Around one-fifth of private markets firms reported that more than 30% of their customers used complex ownership structures. By contrast, 85% of firms not operating in private markets reported having no customers with such structures.
- Higher-risk customers: Some 32% of private markets firms reported politically exposed persons (PEPs) within their customer base, compared with 9% of other firms.
- International activity: Half of the firms surveyed reported that more than 60% of their customers were domiciled overseas. Private markets firms were also more likely to engage in international fund transfers.
These features highlight the importance of identifying ultimate beneficial owners, understanding sources of wealth and funds, and monitoring changes throughout the fund lifecycle.
What the FCA’s Findings May Mean for Private Fund Managers and Advisers
According to the FCA, private fund managers and advisers should not rely on familiarity with investors, low transaction volumes, or the appointment of a fund administrator as evidence that financial crime risks are adequately controlled.
Firms should be able to demonstrate that they have correctly identified their "customers" (in a funds context, this means investors and beneficial owners and they also depending on the circumstances include transactional counterparties) for anti-money laundering purposes and can trace beneficial ownership through complex, offshore and multi-layered structures. Their risk assessments should reflect the particular risks presented by private markets, including PEP exposure, international fund flows and long-term investor relationships.
Where an administrator, overseas affiliate or other third party performs onboarding or ongoing checks, the UK firm should clearly document the allocation of responsibilities. It should also ensure that the relevant arrangements require compliance with applicable UK standards, permit access to the underlying due-diligence materials and provide for appropriate reporting, escalation and risk-based spot checks. The location of the administrator does not remove the UK firm’s responsibility to understand and oversee the process on which it relies.
Due diligence should also remain current throughout the relationship. Firms should establish risk-based review cycles and trigger events for refreshing customer information, beneficial-ownership records and source-of-wealth or source-of-funds evidence, alongside repeat PEP, sanctions and adverse-media screening.
Control Risks
The FCA identified weaknesses across seven areas of firms’ financial crime control frameworks:
Business-wide risk assessment: A business-wide risk assessment should identify the financial crime risks arising from the firm’s activities and assess whether its controls mitigate those risks effectively. Just over one-fifth of firms had either not completed an assessment or had only a partially completed one, while 18% of private markets firms did not specifically address private markets risks. Firms should maintain a documented assessment and review it regularly, including where their business model, investor base, or geographic exposure changes.
Customer risk assessment: Firms must formally assess the financial crime risks presented by their “customers” and use that assessment to determine the appropriate level of due diligence and monitoring. The FCA found that 18% of firms had no formal customer risk-assessment methodology, while some firms did not classify “customers” by risk or have effective processes for verifying ultimate beneficial owners in multi-layered or offshore structures.
Due diligence and enhanced due diligence: Firms remain responsible for compliance with their due-diligence obligations where checks are outsourced to administrators or other third parties. Around 40% of firms outsourced some part of their financial crime compliance function, but only 36% of those firms had full oversight of the third party’s AML onboarding processes. Firms should therefore understand the processes being followed, have access to the underlying materials, and oversee the quality of the work undertaken.
Ongoing monitoring: Firms must monitor customer relationships and scrutinise transactions throughout the relationship. The FCA found that 29% of firms had no formal transaction-monitoring process and 7% had no systematic customer monitoring after onboarding. Where firms rely on manual reviews because transaction volumes are low, those reviews should be supported by documented triggers and escalation procedures to promote consistency and effectiveness.
Screening: Screening for sanctions, politically exposed persons and adverse media should continue throughout the customer relationship, rather than being limited to onboarding. The FCA found that 7% of firms did not conduct repeat screening checks. Firms should maintain risk-based screening arrangements and document how alerts are reviewed and escalated.
Governance: Senior management should receive sufficient information to assess the adequacy of the firm’s financial crime systems and make informed decisions. Just over one-third of firms discussed AML regularly at governance forums, while half had made no investment in remediation or systems improvements during the previous 24 months and 18% had no formal quality-assurance process. Firms should also ensure that the money laundering reporting officer has sufficient time and resources to perform the role effectively.
Training: Financial crime training should be relevant to employees’ roles and updated to reflect changes in legal requirements and emerging risks. The FCA found that some money laundering reporting officers may not have received training on their specific legal obligations and that some firms lacked awareness of legislative and industry guidance updates. Firms should therefore provide regular, role-specific training supported by appropriate testing.
Considerations for Private Fund Managers
Private fund managers and advisers should consider taking the following steps:
- Review AML/KYC requirements and controls: Re-confirm which entities and investors (as well as all beneficial owners) in each fund structure need to be reviewed from an AML / KYC perspective and set this analysis out against the requirements in the Money Laundering Regulations 2017, while also taking account of the Joint Money Laundering Steering Group’s guidance for private funds. We also recommend revisiting the AML/KYC systems in place for each fund’s transactions and ensuring that, where an asset is acquired from a counterparty based outside the UK, AML and KYC checks are carried out to UK standards, and not just to the standards applicable in the jurisdiction where the transaction occurs.
- Strengthen administrator oversight if/where appropriate: Confirm that there are robust written agreements in place with administrators, clearly allocating responsibility for compliance with UK requirements, including where an administrator is based overseas. Verify that the firm can access and review the underlying due-diligence materials and conduct periodic, risk-based spot checks.
- Keep due diligence current: Ensure that investor information and supporting materials are refreshed at appropriate, risk-based intervals and following relevant trigger events. Establish documented processes for transaction reviews and repeat PEP, sanctions and adverse-media screening.
- Update the business-wide risk assessment: Verify that this addresses complex ownership, higher-risk investors, and international fund flows.
- Review governance and resources: Confirm that senior management receives meaningful financial crime information and that the MLRO has sufficient seniority, time and resources.
- Formalise customer risk assessments: Adopt a documented methodology for assessing and classifying customers by risk, with clear due-diligence and approval requirements. Confirm that the firm can identify and verify ultimate beneficial owners in complex, multi-layered, and offshore structures.
- Strengthen quality assurance and training: Conduct periodic quality-assurance reviews of onboarding, transaction-monitoring, screening, and customer-review processes. Use the findings to inform remediation, governance reporting, and regular, role-specific financial crime training.
UK private fund managers and advisers should document their review of the FCA’s findings, including any gaps identified and the decisions taken in response. The FCA has confirmed that it will use the questionnaire data in its supervision of the sector, making it important that firms can demonstrate active consideration and remediation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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