The Financial Conduct Authority has announced plans to review consolidation within the advice market.
In a letter sent to advice and investment firm bosses today (7 October), the regulator said there has been an increase in the acquisition of firms or their assets over the past two years.
It said that, while industry consolidation can provide benefits, various types of harm can occur where this is not done in a “prudent manner” with effective controls to promote good outcomes.
“We plan to undertake multi-firm work to review consolidation within the market,” the letter said.
“Where we receive notifications from individuals or firms to acquire or increase control in regulated firms, we will assess and challenge their suitability and the financial soundness of the acquisition.
“Where acquisitions complete without prior regulatory approval, we may use our enforcement powers to object to the transaction or initiate criminal proceedings.”
The FCA said it expects firms to get its approval to acquire or increase control in a firm it regulates.
A firm looking to do this must also ensure the “delivery of good outcomes” is central to its culture.
“Your leadership, governance, oversight arrangements and controls should be effective, adequately resourced and commensurate with your growing size and complexity,” the regulator said in its letter.
It also expects acquirers or consolidators to undertake adequate due diligence of the selling firm or client bank and take into account its supervision review report and guidance.
In addition, acquiring firms must ensure they hold “adequate financial resources” at all times.
“Where acquisitions are funded by debt, you should have a credible plan to service the debt,” the FCA said.
“This should be supported by realistic and stress-tested financial projections. Where you are an investment firm group, you must fully comply with our prudential consolidation rules.”
