The FCA’s latest review examines consolidation activity across the advice and wealth management sector, highlighting key risks in debt structures, governance, and group oversight.
To be clear: whilst the regulator isn't introducing new rules, this review looks to highlight where consolidator groups may be creating risks that could lead to poor client outcomes, business continuity failures, or disorderly collapse.
Our Investments team has reviewed the FCA’s findings and outlined the key takeaways for firms, both those pursuing acquisition strategies and those considering being acquired.
The FCA is concerned about how acquisition debt is being managed, particularly where regulated advice firms are guaranteeing holding company debt or have their assets secured against group borrowings. The regulator cited called out examples of assets being “upstreamed” from regulated entities to service external debt, with the result being a potentially weaker financial resilience as a result.
Many consolidators aren't adequately recognising and managing group-wide risks. For example, how risks posed from unregulated group entities could impact the end regulated advice business. The FCA was clear that although MIFIDPRU firms must quantify group risks in their ICARA process, this wasn't always happening in the expected manner.
The FCA identified groups using offshore structures that would limit prudential consolidation. The result of these types of structures would effectively limit regulatory visibility and could pose risks to the end consumer when it comes to protecting their investments.
The FCA did point out that some groups were able to demonstrate strong due diligence and integration practices, others could not.
Issues identified in this area include firms not including basic compliance checks in their due diligence and appeared to be ‘tick box’ exercises. Integration of systems, processes and client/staff was also an area that could be improved.
The regulator found that as groups scale, systems and controls were not always keeping pace. Key to Consumer Duty is having robust MI that can feed into outcomes monitoring. In this review however, MI systems weren’t always providing adequate oversight across multiple entities.
The importance of having experienced leadership was also underscored, as well as empowering them to have the experience and confidence to challenge at board level.
It may go without saying, but vertically integrated groups face inherent conflicts that aren't always being properly managed.
This review reiterated this risk to the end consumer, specifically seeing certain firms offering incentives (explicit or implicit) to place clients into group products. This type of incentive structure could undermine a firm’s status as being independent or having well researched panels that have been curated to match well established target markets.
Although conflicts of interest registers were present, they lacked actual well developed conflict mitigation strategies.
The FCA made it clear that the findings of this review were not stating anything new, merely benchmarking firms against existing expectations. As has been confirmed in the past, the FCA is not against consolidation, but it does expect the result to be well-managed, resilient groups.
At Thistle Initiatives, we help firms stay ahead of regulatory change by strengthening their compliance frameworks. Whether you're looking to assess your current controls or prepare for the FCA’s proposed updates to client categorisation as a firm in scope, we offer tailored support that’s practical, proportionate, and effective.
If you’d like to discuss how we can support your firm in light of the new action plan, get in touch at info@thistleinitiatives.co.uk or call 020 7436 0630 to speak with our team.
Tom has worked in compliance for over a decade and is diploma-qualified through the Chartered Insurance Institute (CII). As part of our Retail Investments team, he supports a wide range of firms across the financial services retail sector. His experience covers regulatory frameworks, governance, and operational effectiveness, with a focus on helping firms navigate FCA expectations in a clear and practical manner.