Context
Although not directly relevant to the financial services sectors we support, the FCA has included some guidance on its expectations in relation to firm consolidations in a Portfolio Letter. The FCA has noted an increase in the acquisition of firms or their assets over the last 2 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.
Key points to note and next actions
The FCA expects firms to:
- Notify it and get its approval to acquire or increase control in a firm it regulates.
- Ensure that the delivery of good outcomes is central to firms’ 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, firms should have a credible plan to service the debt. This should be supported by realistic and stress-tested financial projections.
Where the FCA 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, the FCA may use its enforcement powers to object to the transaction or initiate criminal proceedings.