FCA actively monitors risks of private markets to financial stability
FCA CEO Nikhil Rathi noted the regulator had observed the rapid growth of the private markets, as well as the use of leverage in the private equity sector in particular.
During the financial regulator's annual public meeting on Wednesday (4 October), CEO Nikhil Rathi said risks may begin to crystallise in private markets following the shift from a period of low interest rates to a ‘higher rates for longer' macroeconomic environment.
«At some point, you might expect that risk will crystallise in valuations of assets, those valuations of assets could be assets like commercial real estate, and we know what is happening in China,» he said.
Rathi also noted the watchdog has observed the rapid growth of the private markets, as well as the use of leverage in the private equity sector in particular.
FCA to open review of private markets valuations — reports
«We are looking at it from a risk management perspective to understand where that buildup of risk might have taken place, how the valuations are governed, and how that might feed back into other parts of the financial system, be that banking, insurance, or elsewhere,» he said.
Last week, the FT reported that the FCA was preparing to launch a review into private markets valuations by the end of the year, as concerns mount over the impact of higher interest rates on the industry.
Citing people familiar with the plans, the newspaper reported the financial watchdog would examine asset managers' «disciplines and governance» over valuations.
The move came as regulators have expressed anguish that higher debt financing costs and easy money being withdrawn could lead to a crisis in the private markets, as the valuations in the sector lag the public market.
In the meeting,
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