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FCA chief warns private equity firms to be more cooperative

Nikhil Rathi, chief executive of the Financial Conduct Authority, has urged private equity firms to provide more information or face stricter regulatory measures, according to a report by City AM. 

At the Association of Corporate Treasurers, Rathi said that the valuations of private firms have been “under pressure” over the past year, emphasising the need for buyout houses to cooperate with the regulator to avoid stricter action. 

Rathi clarified that the immediate response should not be stringent regulation. He expressed the need for more evidence before declaring a systemic issue in the private finance sector. 

However, Rathi refrained from labeling the issue as a “systemic risk,” distinguishing his stance from that of the Bank of England, which has warned that a sudden drop in valuations could jeopardise the stability of the financial system. 

During a speech for UK Finance last month, Rebecca Jackson, Executive Director for Authorisations, Regulatory Technology & International Supervision at the Bank of England, described “a creeping sense of complacency among firms” with regards to understanding the business of subscription financing or compiling data on loss history in this type of business. 

She warned that the bankruptcy of multiple portfolio companies could expose banks to severe, unexpected losses and potentially pose a systemic risk. 

The Bank of England has instructed banks to start stress testing their exposure to private equity due to concerns that lenders may not fully understand the associated risks. Rathi added that the FCA has been assisting the Bank of England in its efforts to investigate banks’ exposure to the sector. 


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