A review of FCA alternative asset managers has found that nearly three in ten firms operate with no formal transaction monitoring system, according to findings the Financial Conduct Authority (FCA) published this week. The regulator surveyed 242 firms and received responses from 87% of the sample, making it one of the most comprehensive snapshots of financial crime controls in this sector to date.
The review sits within the FCA’s 2025–30 strategy, which aims to raise standards across financial crime compliance and share practical guidance with regulated firms. For retail investors holding funds managed by alternative asset managers, the findings raise questions about the governance environment surrounding their money.
What the FCA Alternative Asset Managers Review Actually Found
The headline figure is stark. 29% of responding firms reported having no formal transaction monitoring system (a tool that flags unusual or suspicious financial activity automatically). A further 18% had no documented customer risk assessment methodology, meaning no written process for deciding how much scrutiny to apply to each client.
The same proportion, 18%, conducted no formal anti-money laundering (AML) quality assurance. Ten percent of firms did not verify customers’ source of wealth. Seven percent conducted no systematic monitoring after a customer had been onboarded, and another 7% did not repeat customer screening at any point after initial checks.
These are not minor procedural shortfalls. The FCA is clear that the review describes weaknesses in systems and governance, not confirmed cases of money laundering. But gaps of this kind are precisely what enforcement action tends to follow.
Private Markets Face a Sharper Risk Picture
The risk profile is not evenly spread. Politically exposed persons (PEPs, meaning individuals with prominent public roles whose wealth and connections attract extra scrutiny) appeared in the customer bases of 32% of private-market firms. Among firms operating outside private markets, the figure was 9%. That makes PEP exposure 3.6 times more common in private markets, though the FCA did not disclose how many firms fell into each subgroup.
Complex ownership structures compound the picture. Around one-fifth of private-market firms said more than 30% of their customers used such structures. Outside private markets, 85% of firms reported having no customers with complex ownership at all.
The FCA specifically highlighted that international transactions can be used to move illicit funds across borders, obscuring the origins of wealth and evading sanctions. Firms in private markets, where cross-border capital flows are common, face a particular obligation to assess and mitigate those risks.
This is not the first time the FCA has signalled concern. The regulator sent a Dear CEO letter to private markets firms on 26 February 2025, putting senior management on notice that financial crime controls in this segment needed to improve, according to analysis by Freshfields.
Outsourcing Compliance Does Not Mean Outsourcing Responsibility
Around 40% of firms outsourced some part of their financial crime compliance function. The problem is what happened after. Only 36% of that group retained full oversight of the third party’s AML onboarding processes, according to the FCA’s own findings.
That means the majority of firms that handed compliance work to an external provider could not demonstrate they were properly checking what that provider actually did. In regulatory terms, the obligation stays with the regulated firm regardless of who carries out the day-to-day work.
The FCA’s related publication on firms’ customer due diligence processes and controls examined policies and procedures, enhanced due diligence, and compliance monitoring as part of the same wider supervisory programme, cross-referencing earlier publications from October and November 2025 on related topics.
What Comes Next for Investors
The review is a cross-sectional snapshot, so it cannot show whether control gaps are improving or worsening over time. What it does establish is a benchmark the FCA can return to.
A follow-up is already scheduled. According to the FCA’s wholesale buy-side regulatory priorities document, the regulator’s Financial Crime Market Interventions Department issued a fresh survey to asset managers and alternative asset managers in Q4 2025, with findings expected in Q3 2026. That will be the first opportunity to see whether today’s published findings have prompted firms to close their gaps.
Freshfields has noted that firms in this sector, particularly those running private markets funds, may face increased FCA enforcement activity given the higher inherent financial crime risks the regulator has now documented in writing.
For investors in alternatives, the practical question is whether their fund manager can demonstrate it has the controls in place that nearly a third of the sector apparently lacks. The Q3 2026 findings will show whether the warning landed.
