On 8 May 2025, the Financial Conduct Authority (FCA) published the findings from its review of business models for smaller asset managers and alternatives.  

Background

The FCA carried out the review as part of its plans to focus on smaller firms to identify business models that pose greater risks of harm to consumers as part of its 2022 alternatives supervision strategy. The review is intended to help new market entrants, smaller firms and growing organisations benchmark sound risk management practices and better understand regulatory expectations.

Findings

The findings focus on three areas: high risk investment (HRIs), conflicts of interest, and the Consumer Duty.

HRIs

The FCA found that most smaller firms offering HRIs were able to clearly categorise their products, but some did not have sufficient processes in place to ensure HRIs are only sold to clients if they are appropriate.

Conflicts of interest

The findings showed that while there were good conflicts of interest practices at some firms, many others had ineffective conflict management arrangements (which increased the risk of consumer harm). These included smaller firms where senior staff held more than one role, which failed to recognise conflicts from their overlapping roles and responsibilities to ensure that where conflicts cannot be prevented they are documented and reviewed and, where required, appropriate disclosure is made to investors.

Consumer Duty

Most firms were found to be making good progress to embed the Consumer Duty in their activities where relevant. However, the FCA notes that some smaller firms still need to understand why the Duty applies to their business model as they have not yet adjusted their processes.

The FCA is working with those firms to make improvements and plans to continue monitoring their conduct on these topics.

Examples of good practice

Also included in the findings are examples of good practice that the FCA identified during its review in relation to each of the above areas.