The Financial Conduct Authority (FCA) published its findings from a multi-firm review into consolidation trends within the financial advice and wealth management sector on 31 October 2025. With acquisitions involving independent financial advisers and wealth managers on the rise, the regulator examined a sample of these consolidated groups, highlighting good practices and areas for improvement, and reminding firms of the FCA’s expectations around consolidations.

The FCA wants to support consolidators to invest and innovate to provide their clients with good outcomes on a long-term and stable basis. It recognises that consolidation has the potential to bring efficiency, growth and resilience – but if poorly managed, it risks client harm, operational failure and regulatory breaches. To address the regulator’s expectations, consolidators need to consider the relevant regulatory requirements and expectations at every stage of the deal.  

Key findings and impacts for firms

The FCA’s findings focused on:

• Group debt management;
• Group risk management;
• Group structure and approach to consolidation;
• Acquisition and integration approach;
• Governance and resourcing; and
• Conflicts management.

We have considered each of these areas below. Consolidators should review whether their approaches align with the good practices outlined by the FCA and address any shortcomings in their acquisition strategy and integration processes that may impact a successful consolidation.

Group debt management – ensuring sustainable financial arrangements

While the FCA recognises the potential benefits of using debt funding to finance acquisitions, it is concerned about any negative impacts on the financial resilience of regulated entities if they face pressure to upstream cash to service group debt. Consolidators therefore need to ensure financial arrangements are sustainable and that regulated entities are well resourced and resilient.

The FCA found that successful consolidators were able to demonstrate proactive risk management by actively monitoring debt levels and using early warning indicators to support timely decision-making. They ensured regulated entities were sufficiently resourced and, in most cases, structured debt security arrangements to shield regulated firms from direct exposure, limiting their credit risk from debt in the wider group even where lenders held charges over the shares of the regulated firms.

However, the review also found poor debt management practices across some groups, with financial statements showing net liabilities or reliance on intangible assets for balance sheet solvency, as well as high levels of short-term debt. In some instances, acquisition debt was secured against the assets of regulated entities, and certain regulated entities provided guarantees for the holding company’s debts. Additionally, there was a reliance on cash flows from regulated entities to service upstream debt, without adequate stress testing to assess whether cash would be available under adverse conditions. The FCA flagged that these practices exposed regulated firms to group credit and operational risks and could reduce the assets available for other potential creditors (including clients) in the event of insolvency elsewhere in the group.

Group risk management – effective arrangements to identify and manage risk

Shared group functions can clearly offer coordination and cost efficiency benefits, but the FCA is concerned that it can also introduce risks. Firms need to ensure effective group risk management practices to identify and manage risk, and properly assess resources for regulated firms. Group financial resources and risk management form part of the FCA’s assessment when considering whether a regulated firm meets the threshold conditions. In addition, firms will note that MIFIDPRU specifically requires quantification of material risks or potential harms arising from group membership in a firm’s Internal Capital and Risk Assessment (ICARA).

Firms that performed well in the FCA’s view demonstrated effective oversight by considering risks across all group entities, including those outside of any investment firm group (IFG), and factoring these into capital and liquidity planning. They also took steps to streamline their group structures and governance, such as de-authorising dormant firms and prioritising client interests.

However, some groups failed to recognise the full scope of group-level risks, particularly interconnected exposures and resource needs across entities. The FCA reminded firms that the requirement to consider group risk in the ICARA process is not limited to entities in an IFG.

Group structure and approach to consolidation – mitigating group risks

The FCA highlighted the prudential consolidation requirements that seek to mitigate group risks by treating all relevant financial undertakings below the top UK parent entity within a group as a single entity. To mitigate the risk of disorderly failure and provide the FCA with sufficient oversight, firms need to hold a minimum amount of capital and liquidity at the consolidated level.

Good practice was observed where groups included all connected entities within an IFG, enabling better governance, oversight, and regulatory supervision at the group level.

However, financial resilience was also identified as a key area for improvement. In particular, some groups held goodwill outside the IFG, meaning the uncertain value of these intangible assets was not properly reflected in financial resources assessments. Additionally, the use of dual-parent structures, often involving offshore entities, limited prudential consolidation and potentially undermined the financial resilience of regulated entities and made regulatory oversight more difficult. This was considered to increase risks to clients and markets.

Acquisition and integration approach – due diligence, integration and strategy

Where acquisition and integration processes are well managed, they enable the creation of real value for clients, employees, buyers and sellers of regulated entities. The FCA has identified good practices in the form of strong due diligence, well managed integration and a clear acquisition strategy.

When firms conducted rigorous due diligence (usually with third party support), they were able to evidence effective risk identification. Tailored integration plans and a clear acquisition strategy considered the needs of clients, staff and systems, and included defined commercial, cultural and client acquisition targets, which were more likely to deliver positive results for all stakeholders.  

However, the FCA also called out examples of acquisition and integration processes that were poorly executed. Some groups recognised that risk and compliance frameworks required enhancement prior to acquisition, but where these issues were not promptly addressed, significant additional financial and non-financial investment was needed. In some cases, inadequate due diligence, often of a superficial 'tick-box' nature that failed to assess fundamental compliance matters, was conducted.

Governance and resourcing – robust systems and controls

Where consolidators target growth through acquisitions, it is essential that they also ensure compliance and risk management functions keep up with the pace of growth and increased complexity of the group. Effective systems and controls are needed to facilitate appropriate governance and management oversight.

The FCA noted examples of successful investment in staff training during system migrations, supported by ongoing product testing and governance. Prioritising leadership development through targeted training, mentorship and recruitment can help manage growing group size and complexity. Strong acquisition and integration processes were supported by robust systems and controls and acted on by senior management.

However, in some groups, governance structures were inadequate, and systems and controls were not scaled in line with the group’s growth. Decisions were sometimes made by boards lacking independent challenge and senior leaders who did not have sufficient knowledge and experience to deal with increasingly complex issues. Unregulated boards were sometimes left to make decisions affecting regulated firms without proper consideration of the impact on the regulated business. This may lead to a misalignment between group-level strategy and the needs of regulated firms and their clients.

Conflicts management – avoiding inappropriate incentive arrangements

Firms need to consider whether any proposed incentives for sellers or their staff could present potential conflicts of interest, which could contribute to client harm by, for example, leading to clients being inappropriately placed into group products. Any incentives would need to be carefully assessed as part of the acquisition strategy in light of the FCA’s Principles as well as the inducements rules.

The FCA observed good practices where groups had taken proactive steps to manage conflicts of interest, such as avoiding remuneration structures that incentivised specific investment decisions (via adviser remuneration or deal structure) and offering clients a broad range of products and services. This was combined with robust compliance monitoring for inappropriate use of internally manufactured services and proper processes for identifying and managing actual or potential conflicts of interest effectively.

On the flip side, the FCA identified groups where conflicts management was inconsistent, with some firms offering incentive schemes for investments in group products or services. While many groups were seen to maintain conflict of interest registers, the steps taken to mitigate those conflicts were sometimes unclear or under-developed.

Next steps for firms: reassessing risk management and group structures

The FCA is not introducing new rules or expectations in response to the review. However, it is asking firms to reassess their risk management arrangements and group structures, and to compare their arrangements against the FCA’s findings.

When doing so, firms should consider the complexity and scale of their business and take steps to address any shortcomings identified, which may result from previous or planned acquisitions and integrations. Given the FCA’s focus on good client outcomes, firms should take particular care to resolve any failings or weaknesses that may contribute to client harm or poor outcomes. This assessment may impact the entire transaction lifecycle, from acquisition strategy, structuring and due diligence processes, through to the change of control and business plan development, and ultimately to the post-completion integration of business functions, governance, compliance and risk management systems and controls. 

As consolidation continues to reshape the financial advice and wealth management landscape, firms must stay attuned to the FCA’s evolving scrutiny. One critical question is whether the FCA will now apply the rules and regulatory expectations underlying these findings more rigorously when scrutinising consolidated groups or reviewing change of control applications. The regulator is certainly keen to point out that, in line with the Consumer Duty and in the interest of market integrity, an assessment of risk management and group structure that is aimed at delivering resilient and well-managed growth, is likely to support timely change in control processes.