Recently published FCA expectations for hedge funds shows the FCA is continuing its focus on hedge funds and private asset managers, reflecting the UK’s status as Europe’s largest centre for private market asset management. Recent sector reviews show regulator intent on promoting fairness, transparency and robust governance for UK hedge funds managing private equity, venture capital, private debt and infrastructure assets.
Key FCA Expectations for Hedge Funds in 2025
Governance and Accountability
FCA wants clear senior accountability for risk, effective oversight by boards and valuation committees, and documentary audit trails of valuation decisions. This ties directly to Consumer Duty obligations: firms must act and monitor to deliver good client outcomes.
Valuation Practices
FCA multi-firm review reveals that while most hedge funds do use established methodologies, independence and transparency need work. FCA expects:
- Conflicts of interest (fees, marketing, asset transfers, redemptions) identified, documented, managed.
- Functional independence in valuation committees, with third-party advisers used to validate internal numbers and avoid undue influence.
- Formal processes for ad hoc valuations during market events, not just routine cycles.
- Consistent, clear record-keeping and logs of assumption changes and model inputs.
- Engagement with external auditors, including sharing insights and process improvements.
Market Integrity & Operational Resilience
The FCA continues to monitor stress scenarios, liquidity management and operational disruptions. Hedge funds must demonstrate tested contingency plans at both portfolio and operational levels.
Sustainable Finance and AML
Senior leadership should ensure the right systems for anti-financial crime controls and KYC. Firms should be ready for FCA reviews of their controls, especially for private market funds.
Key Takeaways
- Governance: Set up truly independent valuation committees, independently staffed and documented.
- Conflicts: Proactively document, review and manage conflicts around fees, asset transfers, marketing, redemptions, and remuneration.
- Ad hoc valuations: Build clear policies for when and how you revalue assets outside your normal schedule.
- Technology: Consider automated third-party valuation solutions for consistency.
- Auditor involvement: Share audit committee minutes, rotate audit firms, and use audit feedback as part of valuation improvements.
- ESG: Prepare for the FCA’s sustainability disclosure requirements.
Why This Matters
Regulatory expectations are rising. Non-compliance damages investor confidence and carries substantial risks. Hedge funds that treat compliance as core are best placed for stability and growth.
We’re actively advising hedge fund clients—in London and across Europe—on all aspects of FCA compliance, Consumer Duty, valuation governance and market disruption readiness. Contact us today for an FCA compliance healthcheck and one-to-one advisory session. Speak to our experienced team for guidance on FCA expectations, Consumer Duty, governance frameworks and valuation processes.
