In October 2024, speaking at the Consumer Duty Alliance event in Birmingham, the FCA’s Nick Hulme made it clear that consolidation in the wealth sector is firmly on the regulator’s radar.
While the FCA remains agnostic on whether consolidation is inherently good or bad, it’s equally clear about the risks when firms grow without the right controls, governance and focus on good outcomes.
On the 31 October, the FCA published its long-awaited findings from its review into consolidation across the financial advice and wealth management sector. The review offers valuable insight into what the regulator expects from consolidators – not only in terms of prudential soundness but also in conduct, governance and culture.
Here’s what firms need to know.
Prudential resilience under the microscope
Much of the FCA’s feedback centres on how acquisitions are financed and how debt is managed across groups. The regulator has reiterated the need for strong financial resilience at both the group level and within individual regulated entities.
The FCA’s findings include clear expectations on conduct, governance and operational resilience
That’s not surprising. Financial fragility at group level can translate quickly into poor customer outcomes – whether through cost-cutting, poor service continuity or instability in client-facing firms. The FCA’s prudential focus shows that financial soundness is a key part of delivering good outcomes under the Consumer Duty.
Beyond prudential matters: conduct and culture
Alongside the financial themes, the FCA’s findings include clear expectations on conduct, governance and operational resilience, signalling that consolidators must balance commercial ambition with regulatory discipline.
1. Due diligence: more than a tick-box exercise
Firms are expected to carry out rigorous due diligence that genuinely identifies and evaluates risk. This starts with legacy advice liabilities right through to the target firm’s ability to meet regulatory standards.
The FCA views the use of independent third-party due diligence providers as good practice, provided findings are clearly understood and factored into decision-making before acquisition.
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2. Integration planning and resourcing
Post-acquisition integration should not be left to chance. The FCA expects clear, disciplined integration plans that reflect each target’s risk profile, business model and culture.
As groups expand, resources must scale accordingly – ensuring sufficient capacity to maintain ongoing client commitments, address legacy issues and meet regulatory obligations.
3. Risk and compliance functions
As groups grow, their risk and compliance capabilities must keep pace. Consolidators need robust systems, controls and management information that enable them to monitor emerging risks, oversee integration activity and assess client outcomes. This includes the delivery of ongoing reviews.
4. Governance and oversight
Effective governance means more than formal structures. The FCA expects senior management to have the skills, experience and insight to manage increasing size and complexity, supported by independent challenge at board and committee level.
The FCA is clear: this feedback doesn’t introduce new rules. It reinforces existing expectations
Decision-makers must have access to appropriate management information and recognise how group-level decisions can affect regulated entities.
5. Conflicts of interest
Consolidation often introduces conflicts. For example, seller incentives tied to deferred consideration or group-wide product strategies. The FCA expects these conflicts to be clearly identified, understood and actively managed through appropriate governance and compliance monitoring.
Firms must ensure their clients’ best interests are not compromised by intra-group incentives or commercial pressures.
What firms should do next
The FCA is clear: this feedback doesn’t introduce new rules. It reinforces existing expectations.
Firms should now:
- Benchmark their arrangements against the FCA’s findings to identify prudential or conduct risks
- Review governance and risk frameworks to ensure they support resilient, well-managed growth
- Evidence board-level ownership of acquisition and integration decisions, including clear accountability for client outcomes
Doing nothing is not an option. The regulator has indicated it will act where acquisitions or changes in control are not notified or where governance and oversight fall short.
Jason Wintie is strategic regulatory director at TCC Group
