The Financial Conduct Authority (FCA) has released guidance for future consolidations, mergers or acquisitions by financial advisers and investment intermediaries financial firms – including those in the insurance sector – and has threatened to initiate criminal proceedings if acquisitions should go ahead without their approval.
In a release today, the FCA said that it planned to undertake multi-firm work to review consolidation within the market.
It then outlined some of the actions it may take.
“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,” it said.
“Where acquisitions complete without prior regulatory approval, we may use our enforcement powers to object to the transaction or initiate criminal proceedings.”
The FCA noted: “There has been an increase in the acquisition of firms or their assets over the last two years.”
The FCA said: “We want to work with you to ensure consumers receive consistently good outcomes from a sector which is sustainable and well placed for the future.”
The FCA also said today: “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 said it expected firms to:
- Notify it and get our approval to acquire or increase control in a firm it regulates.
- Ensure the delivery of good outcomes is central to company culture. That 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
- Take into account our supervision review report and guidance
- Hold adequate financial resources at all times.
The FCA added that where acquisitions are funded by debt, firms should have a credible plan to service the debt.
It said that should be supported by realistic and stress-tested financial projections.
And it added that investment firm groups must fully comply with the FCA’s prudential consolidation rules.