By Iyran Clunis, EMEA Head of Sales, Allvue
As the UK’s Financial Services Regulatory Committee (FSRC) launches its inquiry into the private markets sector, the industry finds itself at a pivotal crossroads. With more than £1.2 trillion now invested across private equity, private credit, real estate, and infrastructure strategies in the UK alone, and even more across Europe, private markets have emerged as essential engines of capital formation, innovation, and long-term growth. But with this rising influence comes increased complexity, interconnectivity, and the potential for systemic risk. The FSRC’s review comes amid a pivotal evolution in private markets, driven by the rise of CLO-related funds and other emerging investment vehicles. Its implications may also stretch far beyond UK borders.
Elevating oversight in a rapidly evolving landscape
Historically, private markets have operated with limited regulatory scrutiny. Their bespoke structures, infrequent reporting, and long-term capital commitments created a perception of insulation from systemic vulnerabilities. However, as the sector has expanded, both in scale and in function, the risks it poses have become more difficult to ignore. Hidden leverage, illiquidity, and asset concentration can quietly accumulate and erupt during times of stress, especially when capital flows reverse or market liquidity tightens.
A forward-looking FSRC can help the UK adopt a more comprehensive framework, one capable of spotting emerging threats early by monitoring leverage, stress testing fund structures, and identifying interconnected exposures across both bank and non-bank institutions. The Committee’s focus should be not just on who the actor is (bank, fund, insurer), but on the level of risk they present to the system.
Closing gaps and leveling the regulatory playing field
Private equity and credit funds, hedge funds, and insurers now conduct activities once exclusive to banks, such as credit provision and maturity transformation. Yet regulation often trails behind. The FSRC’s inquiry represents a key opportunity to close these gaps and reduce regulatory arbitrage. If institutions engage in similar risk-taking behaviours, they may need to consider comparable safeguards, even if their business models differ.
Balancing flexibility and economic growth with regulatory oversight is critical. Over-regulation risks stifling innovation, but too little oversight invites instability. A risk-based,
activity-focused framework that accounts for leverage, liquidity, and investor protection
across all financial institutions, regardless of label, will be key to building a resilient system that supports private market growth.
Data, technology, and transparency: A modern regulatory toolkit
One of the central challenges for regulators remains data transparency. Private markets, by nature, lack the standardised disclosures of public markets, making it harder for supervisors to track market-wide risks or compare practices across firms.
The FSRC’s inquiry prioritises improved data access, interoperability, and digital infrastructure. Enhanced reporting standards, combined with interoperable platforms, would enable fund managers to operate from a unified, transparent foundation and get ahead of regulatory scrutiny while providing transparency for LPs. Advanced technology platforms already exist to digitise fund workflows, automate reporting, and normalise data across asset classes. These capabilities must be integrated into any future regulatory model to ensure that innovation and transparency evolve in parallel.
European coordination and the path to harmonisation
While the FSRC’s mandate is UK-focused, it sits within a wider European regulatory ecosystem. The European Union’s AIFMD review, ELTIF 2.0 reforms, and ongoing work by the European Securities and Markets Authority (ESMA) reflect a continent-wide shift toward modernising oversight and expanding access to private markets. At the same time, the U.S. SEC is enacting new transparency rules for private fund advisers.
The UK has an opportunity not only to shape its own regulatory architecture but also to help drive global standards. Active engagement with EU counterparts, IOSCO, and other international bodies can help align reporting regimes, enable cross-border fund passporting, and avoid fragmentation that could hinder market efficiency or competitiveness.
Looking forward: Opportunity and responsibility
The FSRC inquiry may prove to be a defining moment for the private markets industry. Its outcomes could influence how private capital flows, how firms report and manage risk, and how investors are protected. By focusing on smart regulation, enhanced data and technology adoption, and greater international alignment, the FSRC can help set the standard for the next generation of private markets governance.
With the right approach, the UK and broader European private markets can remain competitive, transparent, and while meeting the evolving needs of economies, investors, and society alike.
