Managing “internal” investment funds and conflicts of interest: recent UK FCA action

What happened?

From 2000 BlueCrest operated a fund open to external investors. In 2011 it launched a separate fund exclusively open to its staff. In 2015 it closed all funds to external investors and transitioned to a family office.

The FCA found that from 2011 to 2015 BlueCrest took steps that elevated the returns of the internal fund over those of the external fund. BlueCrest used both human fund managers and a semi-automated trading system called Rates Management Trading (RMT) to manage its funds. RMT underperformed its human fund managers.  In 2013, after a string of losses, BlueCrest’s group:

• Stopped using RMT on its internal fund. 
• Re-allocated 30% of the external fund’s capital to RMT.
• Over time, assigned more portfolio managers to the internal fund than the external fund.

The FCA found that external fund investors therefore were deprived of these managers’ capabilities and received sub-standard returns. Meanwhile, internal fund investors benefited from higher returns.

External fund investors received no or limited disclosure of these matters. In particular, they were not told that RMT partially managed their investment. BlueCrest staff were directed not to proactively disclose the internal fund or RMT’s existence. 

A long and winding road

In 2021 the FCA proposed to fine BlueCrest GBP48.8m for alleged breaches of Principle 8. That Principle requires a firm to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. The FCA proposed also to impose a requirement (OIREQ) to pay up to USD700m redress.  

BlueCrest appealed the FCA’s decisions. An interim point made it to the Court of Appeal which, in a decision that materially elevates redress risk for firms, confirmed that the FCA could use its OIREQ power in this way: read our blog post for more.  

BlueCrest then settled with the FCA: on 13 October 2025, the FCA published a Final Notice censuring BlueCrest but imposing no fine in view of BlueCrest’s agreement to a voluntary requirement (VREQ) under which USD101m in redress will be paid to certain non-US investors. The FCA said that it decided not to impose a fine in order to maximise the amount available for redress.

Key lessons

Conflicts mitigation should be proactive and involve all three lines of defence.

Your second line’s assessment of conflicts risk should be sufficiently granular. Here, it assessed the risk at a platform level; a fund-by-fund assessment would have been more appropriate.

Ensure that second (and third) lines sense-check first line decision-making about conflicts. It is not enough to rely on your first line diligently meeting their regulatory obligations including to manage conflicts.

Your second line should be empowered to obtain the information it needs to do this. Here, resource allocation decisions were made by senior staff invested in the internal fund. Compliance did not have information on each relevant staff members’ internal or external fund holdings (so could not assess conflicts risk for each decision-maker and whether it was mitigated by any external fund holdings they may have had) or on total internal fund holdings (presenting a firmwide conflicts risk).

Your second line should consider whether your ExCo is sufficiently independent to properly manage conflicts within their remit.

Each regulated firm is responsible for its own regulatory compliance. It should independently consider the impact of other group entities’ decisions on its own compliance. Here, BlueCrest was held responsible for resource allocations that were made by its group’s ExCo that BlueCrest it was merely ‘aware of and ratified’.

Adequate investor disclosure is a key part of managing conflicts appropriately. It is generally not enough just to disclose the potential existence of conflicts. Be specific, clear and upfront. Here, the FCA said BlueCrest did not sufficiently disclose the conflict of interest arising from the allocation of portfolio management resources between funds, how the conflict was being managed, and the external fund’s substantial use of the semi-automated system RMT. And remember that, whilst important, investor disclosure cannot cure every conflict of interests and does not override your regulatory obligations.