On 8 May 2025, the FCA published the findings of its review into the business models of smaller asset managers and alternative investment firms. The review aims to support new market entrants and smaller firms in benchmarking risk management practices and understanding regulatory expectations across high-risk investments (HRIs), conflicts of interest, and Consumer Duty.
The FCA surveyed over 400 firms across three phases in 2023 and 2024 and conducted in-depth assessments of 60 firms offering HRIs or operating retail-facing business models.
While many firms demonstrated awareness of key regulatory requirements, the FCA identified areas where it believes weaknesses persist, particularly around investor categorisation processes, conflicts management, and the embedding of Consumer Duty expectations.
The review reinforces that proportionate but robust governance, tailored risk frameworks, and a clear understanding of retail investor protections are vital in sustaining good outcomes and supporting confidence in alternative investments.
Key takeaways
- Inadequate controls around high-risk investments (HRIs):
Some smaller firms offering HRIs to non-advised retail investors lacked sufficiently robust processes for appropriateness assessments and the preliminary assessment of suitability. In several cases, these assessments were either too simplistic, poorly scored, or misunderstood in terms of regulatory purpose. In the FCA’s view, this increases the risk of unsuitable investments being offered to retail clients. - Elective professional opt up processes lacking:
Firms should implement processes that ensure the qualitative and quantitative criteria under COBS 3.5.3R are tested. Importantly, the FCA note that there should also be regular reviews (at least annually) to assess whether clients continue to meet the opt up criteria on an ongoing basis. - Weak conflicts identification and oversight:
While most firms maintained a conflicts register, these were often incomplete or infrequently updated. Smaller firms with overlapping senior roles sometimes failed to identify inherent conflicts in their governance structures or disclose unresolvable conflicts to investors. Firms should revisit their conflicts frameworks to ensure they are appropriately tailored, embedded in firm culture, and subject to effective oversight. - Consumer Duty compliance remains mixed:
The FCA found that some smaller firms had not adequately considered how Consumer Duty applies to them. A number of firms were unable to produce meaningful board reports or provide evidence of senior management oversight and challenge. Firms must review and embed the Duty into their business models, with formal oversight arrangements and actionable MI.
How can Cosegic help?
- Review your firm’s Consumer Duty implementation
We can assess whether your firm’s Consumer Duty implementation is aligned with FCA expectations. - Review your firm’s conflicts framework
We can help you develop or enhance your conflicts policy and register, ensuring it reflects your business model and is supported by clear governance. - Check your firm’s elective professional opt-up process is compliant
We can provide guidance as to whether your firm’s opt-up process is in line with FCA guidance.
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