Navigating Increased FCA Scrutiny: How Technology Can Empower Compliance in Private Markets

Private markets are experiencing a period of unprecedented growth, attracting significant capital and reshaping the investment landscape. This surge in popularity is driven by a growing belief in the potential of private markets to outperform public markets, with 73% of global institutional investors expecting higher returns from private market investments over the next five years. However, in the UK, this growth has also caught the attention of regulators, with the Financial Conduct Authority (FCA) closely reviewing the sector. As highlighted in recent news, the FCA is conducting in-person visits and surveys to assess private market firms’ compliance with regulations and investor protection standards.

This heightened regulatory focus presents both challenges and opportunities for firms operating in the private markets. While navigating the evolving regulatory landscape may seem daunting, it also presents a chance to demonstrate a commitment to best practices and build trust with investors.  As a leading provider of private market technology solutions, Delio empowers financial institutions to meet regulatory requirements across multiple jurisdictions so they can operate with confidence but also embrace compliance as a strategic advantage.

Working with diverse private market firms globally for over a decade has provided valuable insights into their unique needs and objectives. That’s why supporting customers in building out their private market propositions in a way that truly works for them is crucial. This means understanding their specific goals, regulatory environment, and investor base, and providing flexible solutions that can adapt and evolve alongside their business.

The FCA’s Areas of Focus 

The FCA’s recent actions, including surveying 36 firms with nearly 50 questions and conducting in-person visits, demonstrate its commitment to ensuring transparency and investor protection in the private markets. The regulator is particularly focused on:

• Valuation Practices: Accurate and consistent valuations are crucial in private markets, where assets are not publicly traded. The FCA is scrutinising the frequency of valuations, the expertise and independence of those conducting them, and the overall governance and record-keeping surrounding this process.
• Risk Management and Governance: Robust risk management frameworks are essential for protecting investors and ensuring the stability of the private markets. The FCA assesses firms’ risk management practices, governance structures, and their ability to identify and mitigate potential risks.
• Client Communication: Clear and accurate communication with investors is paramount. The FCA is examining how firms communicate with clients, ensuring they provide adequate information about risks, fees, and investment strategies.

 Empowering Compliance and Transparency

Our technology solutions are designed to address these regulatory concerns and empower financial institutions to embrace compliance as a core part of their operations.

Delio Core OS: This comprehensive operating system provides a robust framework for managing private market investments. It includes features that facilitate compliance with FCA regulations, such as:

• Appropriateness Assessments: Assessing whether investors understand the risks involved in private market investments through automated tests.
• Client Classification: Accurately categorising investors to ensure they are only presented with suitable investment opportunities.
• Configurable Workflows: Creating tailored user journeys based on investor type and jurisdiction, ensuring compliance with specific regulatory requirements.
• Document Management: Controlling access to sensitive documents based on investor classification and transaction workflow steps, promoting transparency and auditability.
• Digital Audit Trails: Maintaining comprehensive records of all activities and document access for compliance and audit purposes.

Delio Structuring & Investment Services: This service helps firms design and structure investment products in a compliant manner. Delio’s expertise in this area helps firms navigate the complexities of structuring various investment vehicles globally.

Delio Plus: This co-creation service enables firms to develop bespoke private market operating systems that incorporate compliance features from the outset. By partnering with us, firms can leverage our expertise in building compliant and user-friendly platforms, ensuring a seamless and trustworthy experience for investors.

Benefits for Financial Institutions

By leveraging Delio’s technology and expertise, financial institutions can reap significant benefits in navigating the evolving regulatory landscape:

• Mitigate Risk: Delio’s solutions help firms reduce the risk of regulatory breaches, fines, and reputational damage by embedding automated checks into their operations.
• Improved Efficiency: Automated workflows and digitised processes streamline compliance tasks, freeing up valuable time and resources.
• Enhanced Investor Trust: Demonstrating a commitment to compliance and transparency fosters trust with investors, leading to stronger relationships and increased investment.
• Scalability: Delio’s solutions are designed to scale with businesses as they grow, supporting continued compliance even as operations expand.
• Competitive Advantage: In a market where regulatory scrutiny is increasing, firms that prioritise compliance and transparency gain a competitive edge.

As private markets continue to evolve and attract a wider range of investors, regulatory scrutiny is only likely to intensify. This trend is driven by several factors, including increased accessibility of private markets to less experienced investors, the growing complexity of investment products, the ongoing emphasis on transparency and disclosure, and a trend towards global regulatory convergence.

Financial institutions must be prepared to adapt to this changing regulatory landscape and demonstrate a proactive approach to compliance. This includes staying informed about the latest regulatory developments, investing in technology to automate compliance processes, developing robust compliance frameworks, and prioritising investor protection.

We are committed to staying at the forefront of regulatory developments and providing our clients with the tools and expertise they need to navigate this evolving landscape. By partnering with Delio, firms can ensure they are well-equipped to meet regulatory challenges, maintain investor trust, and thrive in the dynamic private market environment. Technology solutions and expert guidance help firms comply with current and future regulations, build and maintain trust with clients, and operate efficiently while mitigating risks.

To learn more about how Delio can empower your firm to navigate the regulatory landscape and enhance your private market offerings, please contact us today for a consultation.