The Financial Conduct Authority’s consolidation review may focus on the effect business mergers have on clients now that the consumer duty is in place.
According to this week’s FT Adviser podcast guests, the FCA’s consolidation review is likely to follow similar themes from its previous review in this area carried out seven years ago.
Simon Harrington, head of public affairs at Pimfa, said the FCA’s previous review raised concerns around communication to clients and whether or not the service the client was receiving as a result of the acquisition was necessarily in their best interest.
He is expecting the FCA to raise these concerns again and see whether industry practice has changed for the better.
Speaking on the podcast, he said: “[The FCA could look at] whether or not, in our new kind of consumer duty world, whether [consolidation] is fit for purpose and meets the obligations of the firm under the consumer principle, as a result of increased consolidation activity over the last few years in particular.”
He said the FCA will be looking at whether firms have undertaken the right level of due diligence on the firms they are buying and also if they have the right governance processes in place.
“One of the more pressing concerns as we move into a world where we have some very large consolidators in particular, is the question of whether or not they have grown too quickly, and do they have the right capital reserves in place to sustain the consolidation activity they are undertaking,” Harrington added.
Also appearing on the podcast, Rachel Harte, co-founder and director of Money First Aid, said that when firms become bigger, it can be more difficult to maintain standards.
She said: “If you grow too fast, how can you make sure that you keep [these standards] in place, and make sure that it's monitored and that good client outcomes are happening[...]
“If you do grow quickly, and take on lots of advisers, and therefore lots of clients, and find that the old service at the previous organisation was very different to the new service, how is that transition happening, and how are we making sure that it happens in a good way?
“And so I think some of the larger or larger networks and organisations will have those challenges, and I'm sure that the FCA is looking at them from that point of view.”
amy.austin@ft.com