The Financial Conduct Authority (FCA) has published supervisory observations from a review of groups acquiring independent financial advisers and established wealth management businesses, highlighting good practice and practices that could increase harm. The paper is intended to support sustainable growth by reminding firms of existing FCA expectations on consolidation and by flagging risk areas that can drive poor client outcomes, business continuity failures, or disorderly failure if rapid growth is not managed effectively. The review focuses on group debt structures, organisational structure and prudential consolidation, group risk management, acquisition and integration, governance and resourcing, and conflicts of interest. Risk areas include debt-funded acquisition models that create “double leverage” and pressures to upstream cash from regulated entities, debt guaranteed by or secured on regulated entities’ assets, reliance on short-term refinancing, and limited stress testing of cash generation and intra-group receivables. The FCA also points to weaknesses where groups are not prudentially consolidated or use offshore or dual-parent structures that limit consolidation, including where goodwill is held outside an investment firm group, and where group risk is not fully captured in Internal Capital and Risk Assessment (ICARA) processes under MIFIDPRU. Other themes include “tick box” due diligence and inadequate integration planning, compliance and governance functions not scaling with growth, key decisions affecting regulated firms being taken by unregulated boards, limited independent challenge at board and committee level, and conflicts created by incentives or vertically integrated distribution into in-house products. The FCA emphasises it is not setting new expectations and expects firms using this business model to benchmark their arrangements against the findings and reassess group structure, risk management, and conflicts controls in line with the Consumer Duty and market integrity, which it notes can also support timely change in control processes.
Financial Conduct Authority 2025-10-15
Financial Conduct Authority publishes observations on acquisition-led consolidation in financial advice and wealth management
The Financial Conduct Authority (FCA) published observations on groups acquiring independent financial advisers and wealth management businesses, highlighting practices that could increase harm. The review addresses risk areas such as debt-funded acquisition models, inadequate prudential consolidation, and governance weaknesses. Firms are reminded to benchmark their arrangements against FCA findings to ensure compliance with Consumer Duty and market integrity.