FCA publishes its review of consolidation in the UK financial advice and wealth management sector

In October 2024, the FCA announced that it was conducting a multi-firm review of consolidation in the UK’s financial advice and wealth management sector.  The FCA noted that there had been an increase in the acquisition of firms or their assets over the previous two years, and suggested that it was concerned that these acquisitions were not always being done in a prudent manner with effective controls to promote good outcomes. 

The multi-firm review began earlier in 2025, with numerous firms being asked to submit information, and on 31 October 2025 the FCA published the results of its review. 

In addition to considering a number of specific areas of regulatory concern, the FCA also gave examples of good practice and areas for improvement.

The key findings were are as follows:

1. Group debt management

   While the FCA recognised the potential benefits of debt funding, it noted that funding equity investments through debt can weaken the financial resilience of regulated firms if they face pressure to upstream cash to service the external debt.

   The FCA expressed concern about arrangements where debt is guaranteed by, or secured on the assets of, the regulated firms within the group, which the FCA said can transfer the credit risk of the lender to the regulated firms and result in client interests being subordinated to the interest of the lender in the event of default on that debt.

   In terms of areas for improvement, the FCA noted:

   • Group-level financial resilience and solvency: Top-level consolidated financial statements often showed net liabilities or relied on intangible assets, such as goodwill, for balance sheet solvency. The FCA found some evidence of high debt levels, limited stress testing, and short-term refinancing strategies.
   • Guarantees provided by regulated firms: In some cases, debt was secured on regulated firms’ assets and some regulated firms guaranteed a holding company’s debt. This exposed regulated firms to the credit and operational risks of the group and could reduce the assets available for other potential creditors (including clients) in the event of insolvency elsewhere in the group.
   • Reliance on short-term debt financing: There was reliance at group-level on short-term borrowing, which can create fast-growing future obligations and heightened refinancing risk where guarantor arrangements exist.
   • Stress testing and realisation of resources: There was evidence of heavy reliance on cash generation from regulated firms to service group debt. Some groups had contingency plans in case cash was not available, but some did not. This risk was often unrecognised and not effectively stress tested. While some firms transfer cash via dividends, many built up intra-group receivables which may not be realisable in a stress situation.

   In its examples of good practice, the FCA noted that lenders could hold a charge over the shares of regulated firms, which it said did not expose the regulated firms to significant credit risk from debt in the wider group.  The FCA is, therefore, giving the green light to charges of this nature.  (The review did not expressly acknowledge, however, that the chargee cannot actually acquire control over a regulated entity without prior FCA consent, which makes such structures less attractive to lenders.)

2. Group risk management

   The FCA noted that legal entities within groups often share clients, revenue streams, control frameworks and back-office functions – and that this could introduce risks, including disorderly failure or inadequate assessment of resources. 

   The FCA emphasised the need for effective risk management at a group level and reminded firms that, as part of its assessment of regulated firms, the FCA considers financial resources and risk management in the wider group.

   In terms of good practices, the FCA cited explicit consideration of risks across all group entities, including those outside of any investment firm group (IFG) within which a particular regulated entity sits.

3. Group structure and approach to consolidation

   For the purposes of assessing capital and liquidity, the FCA applies a consolidated approach – i.e. it treats all relevant financial undertakings below the top UK parent entity within a group as a single entity.  The parent undertakings of IFGs must therefore ensure a minimum amount of capital and liquidity at the consolidated level.

   The FCA noted that firms sometimes structure their acquisitions through offshore holding companies, and that this could limit the applicability of the FCA consolidation requirements.  The FCA said that the lack of prudential consolidation can lead to a difficulty recognising, measuring or mitigating group risk, and may also limit regulatory oversight of group debt, goodwill and associated risks.  The FCA included the example of the use of “dual-parent structures, often with one or more offshore” as one of its areas for improvement. 

   This approach suggests that the FCA may be more likely to challenge deal structures involving offshore holding companies, or that the FCA will look to see that its concerns regarding risks within the wider group have otherwise been addressed as part of any proposal for the acquisition of a regulated firm.

4. Acquisition and integration approach

   The FCA emphasised the importance of a well-managed approach to acquisition and integration.  The FCA noted the following good practices and areas for improvement:

   • Strong due diligence pre-acquisition: Rigorous due diligence usually had third partly support and evidenced effective risk management (e.g. in respect of back-book advice liabilities). For some firms, however, due diligence was an area of concern, particularly where the exercises appeared to be “tick box” in nature.
   • Managed integration post-acquisition: Some groups had clear and disciplined integration plans, with well-resourced teams monitoring integration and client outcomes. They (i) assessed client needs, staff capabilities, the firm’s service offerings and overall cultural alignment, with focused resources to remediate any issues; and (ii) evidenced adaptable acquisition and integration processes tailored to the profile of the acquired firm.
   • Strategic growth: Groups with a clear acquisition strategy, including defined commercial, cultural and client acquisition targets were seen as more likely to achieve good outcomes for all stakeholders. Good practice was characterised by strong frameworks for identifying, assessing, and integrating acquisitions and cultural fit assessments.
   • Acquisition of issues: Some groups acknowledged that risk and compliance frameworks needed improvement pre-acquisition. Where issues were not addressed quickly, substantial further investment of financial and non-financial resource was required.
5. Governance and resourcing

   The FCA noted that where groups seek to grow quickly through acquisition, resourcing must keep pace with the increasing scale and complexity of the group.  This means, in particular, ensuring that:

   • compliance and risk management functions are well resourced;
   • robust systems and controls are in place to make sure management can monitor and act upon emerging risks appropriately;
   • senior management have the knowledge and experience necessary to manage the increasing size and complexity of the business;
   • knowledgeable staff are embedded in the acquisition and integration process; and
   • there is appropriate governance to road-test proposed acquisitions and assess any potential risks.

   In terms of good practice, the FCA noted the importance of training, leadership and the use of strong acquisition and integration processes.  Conversely the FCA noted that some groups did not scale systems and controls in line with their growth, and that some firms had insufficient challenge on boards or on board committees.

   One specific area for improvement was in relation to autonomy – where decisions materially affecting regulated firms were made by unregulated boards, without adequate consideration of the impact on the regulated firm’s business.  This may be an area of future focus for the FCA.

6. Conflicts management

   The FCA noted that incentives for sellers and/or to their staff to achieve certain client decisions presents the potential for conflicts of interest.  This could contribute to client harm, such as inappropriately placing clients into a group product, and may not be in compliance with the FCA rules.  Vertically integrated groups (where advised clients are placed into products offered by other group entities) should properly identify and manage the inherent conflicts associated with this type of business. 

   The FCA cited a “no incentives” (i.e. where incentives were not offered based on investment decisions made by the client) as an example of good practice.  The FCA also emphasised the benefit of giving customers choice, and having robust compliance monitoring.

Impact on firms

The FCA says that it is not setting new expectations; its findings are intended to help firms understand those that already exist.  The FCA therefore expects firms to compare the findings of the review to the arrangements within the firm's group to see if those arrangements might lead to increased prudential and conduct risks.

At a practical level, this will have an impact on any firms seeking to make acquisitions in this space. 

The prior consent of the FCA is required to the acquisition of a regulated firm.  As part of that process, the FCA requires the acquirer to provide (amongst other things) (i) details on how the acquisition is to be funded and (ii) a regulatory business plan (which typically covers the strategic development plan for the business, details of due diligence, forecasted financial statements and detailed information about the impact of the acquisition on the target firm).

Acquirers of firms in the financial advice and wealth management sector can expect that their plans for the acquisition will now be scrutinised against the views expressed by the FCA in this multi-firm review. 

There may also be implications for acquirers of regulated firms more generally.  Although the multi-firm review was undertaken in relation to financial advisers and investment intermediaries, only some of the FCA's comments related specifically to the positions of customers in that particular type of business (e.g. where the FCA expressed concern about customers being placed into group products inappropriately).  Many of the FCA's comments - including in relation to financing arrangements, prudential consolidation, governance and integration - would be equally relevant in relation to other sectors, and acquirers of other types of regulated firms should take heed of the FCA's views.

Authored by Dominic Hill.