FCA Financial Crime Review: Due Diligence Lessons for Private Markets

The Financial Conduct Authority has renewed its focus on financial crime controls across asset management and alternative investment firms, with particular concerns emerging around businesses active in private markets.

The regulator engaged with 242 asset management and alternatives firms during 2025/26 to examine how they assess financial crime risk and whether their systems and controls are capable of identifying and managing that exposure. The FCA said private-market firms were more likely to encounter factors such as complex ownership structures, higher-risk customers and international fund flows.

The findings provide an important reminder that due diligence cannot always be reduced to an automated database check.

Where investments, clients or counterparties involve multi-layered corporate structures, offshore entities or cross-border ownership, firms may need to establish who ultimately controls an organisation, understand the origin of wealth or funds and investigate information that cannot be resolved through standard onboarding processes alone.

Why Is the FCA Focusing on Private Markets?

Private markets can involve structures that are significantly more complex than straightforward relationships with listed companies or individual retail customers.

Private equity, private credit, infrastructure, property and other alternative investments can involve:

• Special purpose vehicles.
• Holding companies.
• Offshore companies.
• Trusts.
• Multiple intermediary entities.
• Cross-border investors.
• Family offices.
• Politically exposed persons.
• Institutional or state-linked investors.

None of these characteristics is inherently suspicious.

They can, however, make it harder to establish exactly who owns or controls an entity and where funds or wealth originate.

The FCA found that around one fifth of firms active in private markets reported that more than 30% of their customers used complex ownership structures. By comparison, 85% of firms outside private markets said they had no customers using complex ownership structures.

The regulator also found that 32% of private-market firms reported politically exposed persons within their customer base, compared with 9% among firms not active in private markets.

These figures do not mean those relationships are improper. They do show why risk assessment and proportionate enhanced due diligence can become particularly important.

Complex Ownership Can Obscure the Real Risk

One of the FCA's clearest concerns relates to beneficial ownership.

A company appearing on a transaction may only be one part of a much larger structure.

For example:

Investment vehicle → holding company → offshore entity → trust → ultimate beneficial owner

Establishing the name of the immediate shareholder may therefore provide only part of the picture.

The FCA warned that complex ownership structures can increase risks connected with illicit movement of funds, sanctions evasion and concealment of the origin of funds where the ultimate beneficial owner is obscured.

The regulator also found that a small number of private-market firms had no formal process for verifying ultimate beneficial owners in multi-layered or offshore structures.

This is an area where deeper corporate intelligence can become relevant.

A meaningful review may require examination of:

• Corporate registers.
• Shareholding structures.
• Directors and connected companies.
• Historic ownership changes.
• Trust or nominee relationships where information is available.
• Cross-border corporate records.
• Litigation and insolvency records.
• Regulatory findings.
• Sanctions exposure.
• Politically exposed person connections.
• Adverse media.
• Commercial relationships between apparently separate entities.

The objective is not simply to collect information. It is to understand how the pieces connect.

Customer Due Diligence Is More Than Onboarding

Another significant finding concerns the difference between completing due diligence at the beginning of a relationship and continuing to understand risk afterwards.

The FCA found that 29% of firms reported having no formal transaction-monitoring process. It also found that 7% reported no systematic customer monitoring after onboarding.

Ownership structures can change.

New directors can be appointed.

A previously unknown politically exposed person may become involved.

Sanctions can be introduced.

Companies can enter litigation or insolvency proceedings.

Adverse information can emerge after an investment or business relationship has already begun.

This means that due diligence should not necessarily be treated as a one-off exercise.

The appropriate level of ongoing review depends on the risk presented by the relationship, but firms need mechanisms capable of identifying material changes.

Sanctions, PEP and Adverse-Media Screening

The FCA also identified weaknesses in some firms' approaches to sanctions, PEP and adverse-media screening.

Seven per cent of firms reported that they did not conduct repeat screening for sanctions, PEPs or adverse media.

Screening is an important part of financial-crime controls, but it also has limitations.

A database match does not automatically prove that the person or organisation identified is the same party being investigated.

Common names, transliteration differences, incomplete dates of birth and complex company structures can all create false positives or ambiguity.

Conversely, a clean automated screening result does not necessarily establish that there are no relevant risks.

Sanctions exposure can arise through ownership and control relationships that are not immediately obvious from the name of the contracting entity.

This is why screening and investigative due diligence should be viewed as related but distinct processes.

Source of Wealth Requires Verification in Higher-Risk Cases

The FCA found that 10% of firms did not verify the source of wealth of high-risk customers.

Source-of-wealth enquiries can be particularly challenging where wealth has been accumulated over decades, across multiple businesses or jurisdictions.

Supporting information might include:

• Company ownership and sale records.
• Dividends.
• Property transactions.
• Inheritance.
• Investment activity.
• Professional earnings.
• Business disposals.
• Public corporate records.
• Litigation or insolvency information.

No single source will necessarily provide a complete answer.

The question is whether the available evidence provides a credible and sufficiently corroborated explanation for the wealth being examined.

A declaration from the customer may form part of that process, but higher-risk situations can require independent verification.

Outsourcing Due Diligence Does Not Outsource Responsibility

The FCA's findings are particularly important for firms that rely on external compliance providers.

Around 40% of firms told the FCA that they outsource some CDD and EDD work. However, among those outsourcing firms, only 36% reported full oversight of the third party's AML onboarding processes.

The FCA's position is clear: firms may outsource activities, but they remain responsible for meeting their obligations under the Money Laundering Regulations.

That distinction matters.

An external provider may produce a screening report, conduct research or verify particular facts.

The regulated firm still needs to understand:

• What was checked.
• Which sources were used.
• What could not be verified.
• What assumptions were made.
• Whether findings require escalation.
• Whether further enquiries are necessary.

A report should support decision-making rather than replace it.

When Does Enhanced Due Diligence Need to Go Deeper?

There is no single investigation that should be conducted for every private-market transaction.

The scope should reflect the risks identified.

Deeper enquiries may be appropriate where there are:

• Complex or unexplained ownership structures.
• Multiple offshore jurisdictions.
• Difficulties identifying beneficial owners.
• Politically exposed persons.
• Sanctions concerns.
• Unexplained intermediaries.
• Significant adverse media.
• Questions around source of wealth or funds.
• Material inconsistencies in information supplied.
• Previous fraud allegations or regulatory concerns.
• Significant litigation or insolvency history.

Not every adverse finding should prevent a transaction.

An old dispute, political connection or historic business failure can have legitimate explanations.

The purpose of Enhanced Due Diligence is to give the decision-maker better information about the nature and significance of the risk.

Corporate Intelligence Can Fill the Gaps Between Compliance Checks

Automated screening tools are valuable because they allow firms to check large numbers of customers efficiently.

They are not designed to answer every question arising from a complex commercial relationship.

Where the issue is who ultimately controls an entity, how several companies are connected, whether a declared source of wealth can be corroborated or what lies behind adverse information, investigation may require analysis across several independent sources and jurisdictions.

That is where corporate intelligence can complement the compliance process.

The result should not be a simplistic “pass” or “fail”.

A useful due-diligence report should distinguish between:

• Verified facts.
• Information supplied by the subject or client.
• Independent corroboration.
• Material discrepancies.
• Relevant adverse findings.
• Unresolved questions.
• Limitations in the available records.

That allows compliance teams, investment committees and senior decision-makers to assess risk in context.

What Should Firms Take From the FCA Review?

The FCA has said it will use the information gathered through this review in its ongoing supervision of the asset-management and alternatives sector and may intervene where firms fall short.

For firms operating in private markets, the central lesson is not simply that more checks are required.

It is that financial-crime controls should reflect the real complexity of the business being conducted.

A process designed for straightforward customers may not be sufficient for an investment involving offshore entities, layered ownership, international fund flows and politically exposed individuals.

Due diligence should therefore be proportionate to the risks actually identified rather than applied as a standard checklist.

Enhanced Due Diligence and Corporate Intelligence

Conflict International supports businesses, investment professionals, legal advisers and other organisations requiring deeper due diligence and corporate intelligence in the UK and internationally.

Assignments may include:

• Beneficial ownership research.
• Corporate structure analysis.
• Director and shareholder enquiries.
• International corporate-record research.
• Adverse-media research.
• Litigation and insolvency checks.
• Sanctions and PEP-related research.
• Source-of-wealth enquiries.
• Verification of material representations.
• Identification of connections between individuals and corporate entities.

Our work is designed to complement a client's own legal, regulatory and compliance processes by establishing and analysing factual information relevant to the decision being considered.

If your organisation requires deeper investigation into an investment, counterparty, business partner or corporate structure, learn more about Conflict International's Due Diligence Services.

Discuss Your Due Diligence Requirements

Conflict International can assist with UK and international due diligence where conventional screening leaves unanswered questions about ownership, reputation, financial background or commercial relationships.

Complete the enquiry form below to discuss your due diligence or corporate intelligence requirements in confidence.