FCA’s Latest ‘Dear CEO’ Letter Signals Greater Scrutiny on AML & KYC Compliance

On February 26, 2025, the UK Financial Conduct Authority (FCA) issued its latest ‘Dear CEO’ letter to firms in the Asset Management and Alternatives portfolio, outlining its supervisory priorities for the year ahead. Among the key areas of focus, the FCA highlighted a strong emphasis on financial crime and market abuse, reinforcing its commitment to ensuring robust anti-money laundering (AML) and Know Your Client (KYC) practices across the sector.

Read the full letter here.

A heightened focus on financial crime risk

The FCA’s letter acknowledges the growing complexity of private markets and investment structures. But, given the increased risk of financial crime in these areas, they have reiterated they will be focusing supervision on the private markets and emphasise the need for comprehensive AML and KYC controls to counteract the risks.

Key concerns include:

• Unsuitable procedures and policies that don’t adequately protect from financial crime, including money laundering, fraud, terrorist financing, and bribery/corruption.

• The need for proportionate, risk-based due diligence and KYC on investors and deals, with a focus on properly identifying ultimate beneficial owners (UBOs) and assessing their risk profiles.

The FCA has made it clear that it will actively audit firms’ AML frameworks, reviewing policies, procedures, and oversight mechanisms. Firms with outsourced compliance functions should take particular care to ensure their providers are meeting the relevant regulations and are complying fully with the firms policies and procedures.

With offices in New York, Boston and London Avantia’s AML team is led by ex-Big Law compliance experts and lawyers. We combine AI and technology with human experts to meet asset managers’ KYC needs quickly and cost-efficiently. Find out more about our Transaction KYC services here.

Market Abuse: A renewed compliance priority

Market integrity remains a core FCA priority, with firms being reminded of their obligations under the Market Abuse Regulation (MAR). The FCA expects:

• Comprehensive market abuse controls to detect and prevent misconduct.

• Proactive surveillance and reporting mechanisms to mitigate risks.

• Stronger first-line compliance efforts to safeguard against potential abuse.

As private assets and alternative investments grow, so too do risks of misconduct, including insider dealing, market manipulation, and inadequate trade surveillance.

What this means for Asset Managers

This letter serves as a call to action. Asset management firms must ensure their financial crime systems and controls are robust, well-documented, and actively monitored. The FCA has signalled a more proactive supervisory approach, meaning firms should expect more frequent and detailed AML reviews.

To stay ahead of regulatory scrutiny, firms should:

1. Review AML and KYC policies to ensure alignment with FCA expectations.

2. Conduct internal audits of financial crime controls, identifying and addressing any weaknesses.

3. Ensure suitable regular and enhanced due diligence programmes are in place for higher-risk transactions or investors.

4. Lead from the top, by actively creating a culture of compliance.

5. With both the FCA and European regime increasing scrutiny, on both initial KYC and ongoing AML monitoring, and the upcoming FinCEN AML expansion in the US – firms cannot afford to be complacent.

Whether you are a small investor or global firm, the new year presents an opportunity to review your financial crime frameworks and policies, strengthening them and ensure you demonstrate a proactive approach to AML / KYC.

If you'd like to discuss your current compliance approach or to see how we help 100's of asset managers globally meet KYC and AML requirements across all jurisdictions, you can book a call with our team here.