The UK Financial Conduct Authority (FCA) has sent a letter outlining its expectations for financial advisers and investment intermediaries.
The regulator notes the increase in the acquisition of firms or their assets over the last two years. 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.
The FCA expects firms to:
- Notify the regulator and get its approval to acquire or increase control in a firm it regulates.
- Ensure the delivery of good outcomes is central to a firm’s culture. Leadership, governance, oversight arrangements and controls should be effective, adequately resourced, and commensurate with a firm’s growing size and complexity.
- Undertake adequate due diligence of the selling firm or client bank.
- Hold adequate financial resources at all times. Where acquisitions are funded by debt, a firm should have a credible plan to service the debt. This should be supported by realistic and stress-tested financial projections. Where you are an investment firm group, you must fully comply with FCA’s prudential consolidation rules.
The FCA plans to undertake multi-firm work to review consolidation within the market. Where it receives notifications from individuals or firms to acquire or increase control in regulated firms, it will assess and challenge their suitability and the financial soundness of the acquisition.
Where acquisitions complete without prior regulatory approval, it may use its enforcement powers to object to the transaction or initiate criminal proceedings.
