THE GRC NAVIGATOR
Your Bi-Weekly GRC Intelligence Briefing
Issue 9 | 15 September 2025
Executive Summary
Top Story: Ex-Two Sigma Quant Charged with Model Manipulation in $170m Fraud Case
A former quantitative researcher at Two Sigma has been charged with manipulating portfolio-construction models to inflate performance and attract investor capital, in a case involving approximately $170 million in investor losses.
◆ Prosecutors allege undisclosed changes to model parameters, improper backtesting practices, and misleading risk reporting designed to enhance apparent performance
◆ The case highlights critical weaknesses in model governance frameworks, including inadequate approvals, documentation, version control, challenge processes, and audit oversight
◆ Regulators emphasise that investors were not informed that altered settings materially affected investment outcomes and risk profiles
◆ The charges underscore the importance for asset managers to align marketing claims with independently verified results and implement robust controls around research code access
Regulatory Updates
FCA Launches Campaign on Motor Finance Compensation Scheme
The FCA has launched a £1 million campaign to raise awareness that consumers do not need claims management companies or law firms to access the proposed motor finance compensation scheme.
◆ The campaign aims to prevent consumer exploitation by third-party claims processors charging unnecessary fees
◆ The initiative follows widespread concerns about potentially mis-sold motor finance products and associated commission arrangements
◆ Motor finance providers should prepare for increased scrutiny and potential redress obligations
FCA Cuts Reporting Requirements for 11,000 Retail Intermediary Firms
The regulator has announced further cuts to data reporting requirements that will benefit 11,000 retail intermediary firms, continuing its broader data collection transformation initiative.
◆ The reductions form part of the FCA’s ongoing effort to eliminate unnecessary regulatory burden while maintaining supervisory effectiveness
◆ Affected firms should review updated reporting obligations to ensure continued compliance
◆ The changes reflect the FCA’s commitment to proportionate regulation for smaller market participants
FCA Proposes Enhanced Contactless Payment Convenience
The FCA has published consultation proposals that could increase convenience for consumers making larger contactless payments by removing current transaction limits.
◆ The proposals recognise advances in fraud detection technology and consumer payment preferences
◆ Payment service providers would gain flexibility to set appropriate limits based on their risk management capabilities
◆ Implementation could enhance UK competitiveness in digital payments innovation
PRA Developments
Bank of England Launches Gilt Repo Market Resilience Review
The Bank of England has published a Discussion Paper seeking views on measures to enhance the resilience of the gilt repo market, with feedback due by 28 November 2025.
◆ Greater central clearing of gilt repo: The BoE proposes expanding central clearing to improve dealer balance-sheet efficiency, reduce counterparty credit risk, and limit risks from disorderly unwinds of highly leveraged, concentrated positions
◆ Minimum haircuts for non-centrally-cleared gilt repo: New requirements would address current practices where haircuts are often zero or near-zero, though the BoE acknowledges potential cost-of-trading impacts
◆ Enhanced transparency measures: Additional ideas include improved public and private counterparty disclosures to support market confidence during stress periods
◆ The proposals follow lessons from the System-wide Exploratory Scenario and recent market stress episodes, with international precedent from US SEC mandates for Treasury clearing by mid-2027
Fund Launches & Capital Raises
Blackstone Seeds New Credit Hedge Fund Covara with $250m
Blackstone has provided $250 million in seed capital to launch Covara, a new credit hedge fund targeting dislocations across global corporate credit, structured credit, and event-driven situations.
◆ The strategy seeks idiosyncratic relative-value trades and opportunistic long/short exposures as refinancing walls and higher rates create spread volatility
◆ The launch signals continued institutional confidence that active credit strategies can capitalise on dispersion as capital structures adjust to higher rates
Ex-King Street Partner Prepares $1bn Hedge Fund Launch
A former senior partner at King Street is reportedly preparing to launch a new hedge fund targeting approximately $1 billion, focused on credit and special situations strategies.
◆ The platform will combine fundamental bottom-up analysis with tactical trading around catalysts including refinancings, restructurings, and litigation milestones
◆ The vehicle offers exposure to complex capital structures where dispersion is increasing as financing costs reset and debt maturities cluster
Other Notable Fund Closes:
Veritas Capital Closes Ninth Flagship at $14.4B, exceeding its original $13 billion target on strong oversubscription—underscoring continued LP demand for defence, healthcare and government services specialists.
One Equity Partners IX Closes at $3.25B, to pursue control investments across industrial and healthcare niches.
Pemberton Final Closes NAV Financing Core Fund I at $1.7B, marking a strong entry into portfolio-level lending solutions for PE owners amid sustained demand for liquidity tools.
Carlyle Targets $4B+ Portfolio Finance Fund via AlpInvest, offering GPs and LPs additional options to unlock liquidity from illiquid PE stakes.
HSBC AM Launches Evergreen PE Fund for HNW Investors extending private-market access beyond traditional institutional channels.
Great Hill Partners Closes Flagship at $7B, Above Target, surpassing a $5 billion target and hitting the hard cap after an accelerated five-month raise.
Peak Rock Raises $3B+ Across PE and Private Credit amassing $3B+ to pursue control buyouts and credit opportunities.
Benefit Street Partners Closes $2.3B Private Credit Continuation Vehicle signalling growing secondaries activity in private credit alongside NAV-style solutions.
Centre Partners Targets $150M for Fund VIII (Hard Cap $200M) continuing its lower-mid-market buyout strategy.
Enforcement Watch
Investment Fraudster John Burford Sentenced to Two Years in Prison
John Burford has been sentenced to two years in prison following an FCA prosecution for defrauding over 100 investors out of £1 million through his firm, Financial Trading Strategies Limited.
◆ The case demonstrates the FCA’s commitment to pursuing criminal sanctions against individuals who operate fraudulent investment schemes
◆ The substantial number of victims (over 100 investors) highlights the widespread impact of investment fraud on retail consumers
◆ The prosecution reinforces the importance of proper authorisation and compliance with investment business regulations
◆ Investment firms should ensure robust client onboarding and investment suitability processes to prevent similar misconduct
Three 'Finfluencers' Charged in FCA-Led Global Crackdown
The Financial Conduct Authority has brought criminal charges against three individuals for promoting unauthorised foreign exchange investments on social media platforms, marking a significant escalation in the regulator’s enforcement approach to online financial promotions.
Charles Hunter, Kayan Kalipha and Luke Desmaris have made their first court appearances after being charged with offences relating to their social media financial promotions.
◆ The charges represent part of a broader FCA-led global initiative targeting illegal online financial promotions
◆ The case demonstrates the regulator’s increasing focus on social media channels and influencer marketing
◆ Financial services firms should review their promotional arrangements and ensure compliance with financial promotion rules
West Brothers Sentenced for Insider Trading and Fined £280,000
Matthew and Nikolas West have been sentenced for insider dealing in a prosecution brought by the FCA, with financial penalties totalling £280,000.
◆ The case demonstrates the FCA’s continued commitment to pursuing individual accountability for market abuse violations
◆ The penalties combine custodial sentences with significant financial consequences designed to deter future misconduct
◆ Market participants should strengthen insider information controls and ensure robust compliance training programmes
Market Developments
AI Boom Fuels Wave of New Hedge Fund Launches
Fund managers are rapidly launching new vehicles targeting artificial intelligence themes, including infrastructure, semiconductor supply chains, data centres, and software platforms across public and private markets.
◆ Launch momentum reflects strong investor demand for exposure to genuine growth and productivity stories amid uncertain macroeconomic conditions
◆ However, concentration risks, crowded trades, and valuation concerns remain across AI-focused strategies
Hedge Fund Inflows Hit Decade High
HEDGE FUNDS, PERFORMANCE
Allocations to hedge funds have accelerated to their strongest monthly pace in years, as institutional investors seek diversification, downside protection, and differentiated alpha sources.
◆ The revival reflects improved three- and five-year performance track records and higher base rates enhancing cash yields on collateral
◆ Growing confidence in multi-manager platforms, event-driven, credit, and macro strategies is driving renewed institutional interest
◆ Flows favour scalable managers with robust operations, transparency, and demonstrated risk discipline beyond cyclical style tailwinds
Citadel Boss Warns Trump's Fed Attacks Could Hit Markets
Citadel’s founder has warned that political attacks on the Federal Reserve could undermine market confidence, threaten central bank independence, and increase risk premia across asset classes.
◆ Political pressure on monetary policy may complicate inflation-fighting credibility and increase volatility around policy decisions
◆ Portfolio managers should enhance liquidity management and hedging around policy events given potential political intervention risks
Regulatory Calendar
• Early Oct (TBC) — FCA: Publication of the motor finance compensation scheme consultation.
• 7 Oct — HMT, FCA & PRA: SMCR reform consultation responses due (FCA CP25/21; PRA CP18/25; HMT consultation).
• 8 Oct — HMT, FCA/FOS: Consultation closes on the Financial Ombudsman Service review and modernising the redress system.
• 21 Oct — Bank of England: Consultation closes on RT2/CHAPS hours extension.
• 31 Oct — PRA: Consultation closes on the IRB mortgage approach.
• 19 Jan — UK: POATR (Public Offers and Admission to Trading Regime) starts (FCA PS25/9; debt prospectus rules).
• 26 Jan — UK EMIR: Trade repository reporting amendments take effect.
• 1 Jun — PRA: Implementation date for most large exposures framework reforms (excluding removal of internal model methods for SFTs).
• 30 Jun — PRA: Modification of leverage ratio requirements ceases to apply (unless revoked earlier).
Question of the Week
Insight: Regulatory Marketing Spend
The FCA’s £1 million campaign targets measurable consumer vulnerability: 41% of eligible consumers didn’t know they could access motor finance compensation directly, avoiding intermediary fees averaging 30%. With 30 million agreements under review—the largest potential redress since PPI—traditional regulatory channels lack mass-market penetration.
The spend demonstrates institutional learning. Unlike PPI, where consumer awareness campaigns began after extensive claims management company exploitation, the motor finance strategy prioritises early intervention before the October 2025 consultation launch. The FCA has already required 396 promotions to be amended and addressed 171 misleading advertisements.
Strategic sophistication shows in execution: targeting social media platforms for younger consumers, using influencers to reach audiences beyond traditional regulatory communication, and timing interventions to prevent rather than remedy consumer exploitation. The campaign acknowledges that claims management companies establish operations rapidly around compensation schemes, exploiting awareness gaps.
This proactive approach recognises market realities while raising precedent questions. If regulators resort to expensive marketing every time redress schemes face intermediary exploitation, enforcement budgets become hostage to claims farming sophistication. Success metrics will determine whether this represents sustainable consumer protection or expensive gesture politics.