Regulator’s findings emphasise the need for sound risk management, appropriate group structuring, and prudent use of debt.
On 31 October 2025, the FCA published the findings from its multi-firm review of consolidation in the financial advice and wealth management sector. The FCA warns that, while consolidation in the sector can support efficiency, growth, and resilience, and it is keen to support consolidators to invest and innovate, it can also lead to poor outcomes, such as inadequate client service and business continuity issues. It therefore wants to see consolidation done in a sustainable way to ensure the continued provision of good outcomes to clients on a long-term and stable basis. The FCA’s findings are relevant to businesses looking to make future acquisitions in this sector, and to businesses that have already done so, and contain some important observations.
The FCA expects groups and firms which are the product of consolidation to review their arrangements in light of its findings, and consider whether they might lead to increased prudential or conduct risks. In particular, the FCA highlights that firms should reassess risk management arrangements and group structures for orderly and effective growth, bearing in mind the Consumer Duty (where applicable) and market integrity. The FCA has particular concerns around the use of offshore holding companies which limit prudential consolidation, so groups with such structures may wish to review any impact on financial resilience. Those firms with future consolidation plans may also wish to assess whether they are in step with the FCA’s expectations on risk management to help support an efficient change in control process.
Key Findings
Debt Structures
While the FCA recognises the value of debt financing for acquisitions, it cautions that funding equity investments through debt can weaken the financial resilience of regulated firms within the group if they face pressure to upstream cash to service the external debt. The FCA is particularly concerned about arrangements under which debt is guaranteed by, or secured on the assets of, the regulated firms within the group. It was also troubled to see high levels of debt in some groups, lack of stress-testing, and reliance on short-term borrowing.
The FCA expects to see proactive risk management in relation to debt, with groups ensuring that regulated entities are resilient to overall levels of group debt.
Risk Management
The FCA stresses that it considers risk management and financial resources across the group as a whole when assessing whether a regulated firm meets the threshold conditions. It also reminds firms that the Internal Capital and Risk Assessment (ICARA) process requires them to consider risks across all group entities, not just those in an investment firm group.
The regulator expects to see consistent oversight of risks across all entities, new risks being captured effectively, and proper assessment of adequate resources for regulated firms.
Group Structure
The FCA notes that acquisitions may be structured through offshore holding companies, which limits the applicability of FCA prudential consolidation requirements. The regulator emphasises that these provisions are designed to mitigate the risk of disorderly failure and allow it to exercise effective supervision by having overall visibility of the relevant entities and risks. It considers that the insertion of an offshore entity makes regulatory oversight more challenging, and can undermine financial resilience. The FCA further warns that a lack of full prudential consolidation can mean that goodwill is held outside of the investment firm group and is not appropriately deducted from capital, thereby not providing a true view of regulated firms’ financial resources.
Approach to Acquisition and Integration
The FCA expects groups to have the resource, frameworks, expertise, and support needed to deliver good outcomes to all parties. In particular, it expects groups to conduct rigorous due diligence, which is then challenged and understood by decision-makers. It flags that issues addressed promptly post-acquisition tend to avoid the need for substantial further investment. The FCA wants to see clear and disciplined integration plans, with well-resourced teams monitoring integration and client outcomes, and processes tailored to the profile of the firm being acquired.
Governance and Resourcing
The FCA expects resourcing to keep pace with growth, in particular ensuring that compliance and risk management functions are well-resourced and that robust systems and controls enable management to monitor and act upon emerging risks appropriately. It suggests that firms embed knowledgeable staff within the acquisition and integration process. Further, it expects to see evidence of investment in staff training on migration to new systems.
The FCA also emphasises that senior managers need to have the requisite knowledge and experience for the size and complexity of the business as it expands, which may require investment in training or new recruits. It wants to see groups with suitable independent challenge on boards, and was concerned to see some decisions materially affecting regulated firms being made by unregulated boards without properly considering regulatory implications.
Conflicts Management
The FCA warns that vertically integrated groups, in which advised clients are placed into products offered by other group entities, need to properly identify and manage the inherent conflicts associated with this type of business. It saw evidence of some conflicts of interest registers having unclear or underdeveloped strategies to mitigate the conflicts identified, and expects firms to ensure that they identify and manage actual or potential conflicts of interest effectively.
