The FCA said today it will undertake a review of consolidation within the financial advice market.

It revealed the review in its latest Dear CEO letter to bosses of financial advice and investment intermediation firms.

The letter set out its expectations of Financial Planners, financial advisers and investment intermediaries.

It said that consolidation would be a big change in the industry in the coming years.

Lucy Castledine, director of consumer investments at the FCA, wrote: “There has been an increase in the acquisition of firms or their assets over the last two 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.”

To address concerns in this area the FCA said it will undertake multi-firm work to review consolidation within the market.

It said: “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. Where acquisitions complete without prior regulatory approval, we may use our enforcement powers to object to the transaction or initiate criminal proceedings.”

The FCA set out its expectations for consolidating businesses. It said it expects firms to:

• Notify the FCA and get its approval to acquire or increase control in a firm it regulates.
• Ensure the delivery of good outcomes is central to a firm’s culture. Its leadership, governance, oversight arrangements and controls should be effective, adequately resourced, and commensurate with its growing size and complexity.
• Undertake adequate due diligence of the selling firm or client bank.
• Take into account the FCA’s supervision review report and guidance.
• 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 a firm is an investment firm group, it must fully comply with the FCA’s prudential consolidation rules.

The letter also said the FCA is following up on the findings of its thematic review of retirement income advice with firms and carrying out further work to explore the scale of any issues identified and tackle any harms. It said it will publish further commentary on the retirement income advice market in Q1 2025.