The Financial Conduct Authority has announced plans to review consolidation in the advice market.
In a letter sent today (October 7) to heads of advice and investment firms, the regulator said there had been an increase in takeovers of companies and their assets over the past two years. 
The report states that while industry consolidation can bring benefits, there are many types of negative effects if it is not done in a “sensible manner” with effective management to promote positive outcomes. He said that there is a possibility that this may occur.
“There will be a multi-company effort to explore integration within the market,” the letter said.
“When we receive a notification from a person or company to acquire or expand control of a regulated entity, we assess the suitability and financial soundness of the acquisition and challenge it.
“If an acquisition is completed without prior regulatory approval, we may exercise our enforcement powers to challenge the transaction or initiate criminal proceedings.”
The FCA said it expects companies to obtain approval when acquiring or increasing control of a company it regulates.
Companies looking to achieve this must also ensure that 'delivering good results' is at the heart of their culture.
“Your leadership, governance, supervisory arrangements and controls must be effective, adequately resourced and commensurate with your growing size and complexity,” the regulator said in the letter.
The acquirer or integrator is also expected to conduct appropriate due diligence on the selling company or customer bank and consider its supervisory review reports and guidance.
Furthermore, the acquiring company must always have “sufficient financial resources.''
“If the acquisition is financed with debt, you will need to have a reliable plan in place to repay the debt,” the FCA said.
“This should be underpinned by realistic, stress-tested financial projections. If you are an investment company group, you must fully comply with our prudential consolidation rules.”
