Understanding the FCA Review of Private Market Valuation Practices

In March 2025, the Financial Conduct Authority (FCA) in the UK published the results of a comprehensive review of private market valuation practices. The review was conducted in response to the global growth in private markets, which are intrinsically less transparent for investors. The final report described the state of market practices and identified a number of recommendations for improving quality and reliability of reported valuations.

The Background of the Review

The review was conducted in two phases: the first involved a questionnaire sent to 36 firms, while the second included in-depth assessments through document requests and site visits, focusing on governance and valuation processes.

Key Findings of the Review

1. Governance Structures: The FCA observed that most firms had established governance arrangements for valuations, including dedicated valuation committees. However, the effectiveness of these committees varied, with some firms lacking robust record-keeping to ensure accountability and oversight.
2. Functional Independence: The FCA identified independence of valuation committees and functions as a core component of a sound valuation process. There was a varying degree of functional independence observed across firms included in the review.
3. Valuation Frequency and Ad Hoc Valuations: The review highlighted that private debt is typically assessed on a monthly or quarterly basis, while private equity is commonly evaluated quarterly. The FCA stressed the importance of regular valuations to prevent stale valuations. Additionally, the review pointed out that ad hoc valuations—those conducted outside regular schedules—can be an important tool for reducing risk.
4. Conflicts of Interest: The FCA identified potential conflicts of interest in valuation processes, including circumstances where valuations impact investor fees, asset transfers, and employee remuneration. While many firms recognized these conflicts, the FCA found that documentation and active management of these conflicts were sometimes insufficient.

Recommendations for Firms

The FCA's review concluded with several actionable recommendations for firms:

• Enhance Governance: Firms should ensure that their governance structures promote accountability and effective oversight of valuation practices, including maintaining accurate records of valuation decisions.
• Strengthen Independence: The FCA recommended that firms assess the independence of their valuation functions and ensure that their valuation processes are not unduly influenced by portfolio management teams.
• Implement Regular and Ad Hoc Valuations: In addition to establishing a regular cadence of valuations, the FCA encouraged firms to define the circumstances that would trigger ad hoc valuations in response to significant market changes or volatility.
• Document and Manage Conflicts of Interest: The FCA encouraged firms to identify potential conflicts of interest in their valuation processes, document them comprehensively, and implement measures to manage these conflicts effectively.

Next Steps for the Industry

The FCA has indicated that it will continue to monitor the implementation of its recommendations and assess firms’ progress in addressing the identified gaps. Additionally, the authority plans to conduct a multi-firm review focusing on conflicts of interest in firms managing private assets, emphasizing the need for evolving procedures to ensure investor protection.

In conclusion, the FCA’s review serves as a critical reminder of the importance of transparency, independence and accountability in private market valuations. As firms grow and access new sources of capital, strong valuation processes will be key to creating trust and mitigating risk in private asset investing.