The FCA’s Consolidation Review: What have we learnt?

The Financial Conduct Authority’s Consolidation Review has sparked significant debate across the advice sector. But beyond the headlines, what practical lessons can firms draw from its findings? This article written for IFA Magazine by Anthony Turner(corporate partner) and Andy Peterkin(financial services partner) at independent law firm, Farrer & Co, explores the key insights, highlighting what the review reveals about regulatory expectations, business resilience, and the evolving landscape for financial advisers.

Since the publication of the FCA’s consolidation review in October last year, we have had a number of conversations with the regulator, trade associations and clients about what the FCA’s consolidation review means in practice.

A continuing increase in deal activity

Over the last few years, we have seen sustained growth in deal activity in the financial advice and wealth management sectors. In 2025, the FCA received over 1,000 change-in-control notifications, almost a quarter of which involved the financial advice and wealth management sector.

As well as acquisitions, we have also seen an increasing trend towards clients taking a minority stake in target businesses, rather than acquiring the whole entity. This has the advantage of lowering risk, acquisition costs and integration challenges. We expect this trend to continue.

How firms can achieve sustainable growth

The firms that have benefited most from consolidation have been those that have handled integration most effectively. The FCA, in its review, highlighted that firms with a clear structure, strong governance and risk management processes are in a better position to achieve sustainable growth and deliver good outcomes for their clients, shareholders and employees.

The FCA recognises the benefits of consolidation, and its review was intended to support best practice as this consolidation continues. The benefits of M&A include introducing fresh capital to regulated firms to drive efficiency and innovation, and maintaining continuity of advice in the wider demographic context of financial advisers reaching retirement age.  However, the review gives market participants further clarity on what the FCA considers good practice, as well as areas of concern and increased regulatory scrutiny.

It is also clear from the review that inadequate due diligence on acquisition targets is a key risk. We have often highlighted the importance of due diligence in enabling successful integration in M&A – not just from a regulatory perspective but also to ensure the long-term success of acquisitions – and of including forward integration planning in early deal structuring.

The consolidation review does not set out new requirements on firms, so should not change the substantive legal position, but we expect that the regulatory focus will be much more stringent on the areas of concern raised by the FCA.

Increased scrutiny of acquisition financing structures.

A significant theme in the FCA’s review relates to acquisition financing structures. The use of debt, particularly in private‑equity‑backed wealth management groups, has been fundamental to consolidation activity and is a standard part of acquisition finance structures.

However, the FCA is signalling increased scrutiny of these structures. It identifies particular concerns where debt is short-term and/or secured against the assets of regulated entities within the group. This is particularly relevant where the regulated entity guarantees wider group debt; this exposes it to a greater degree of risk of failure (with the consequent negative client outcomes) and potentially reduces assets on enforcement or insolvency.

Our experience is that heavy reliance on cash generation from regulated activities to service acquisition debt will also be viewed negatively by the FCA. It is going to be important for the debt burden to be demonstrably sustainable and stress tested, and not reliant solely on projected cash generation. It is important to ensure that any security over the target includes carve-outs for regulatory capital requirements.

Proactive monitoring of debt pressure will be a more important regulatory element rather than a purely financial concern. The FCA already requires disclosure of acquisition finance as part of the change-of-control process and can ask detailed questions about debt structures. The FCA should therefore already be getting a good picture of what debt is being placed on the wider structure, and firms should bear this in mind as part of their risk management.

Incentive Structures and Conflicts of Interest

Another FCA concern highlighted in the review is the use of incentive structures which could constitute a conflict of interest. This includes incentives for sellers and/or their employees to achieve certain client outcomes in the context of M&A, which may conflict with the FCA’s Principles for Businesses and rules on inducements. Deal structures may need to adapt to reflect this, particularly where earn-out arrangements are linked to client decisions.

What this means for future M&A

Firms active in consolidation should be aware that these areas are likely to be closely scrutinised by the FCA generally, but particularly in the context of change-in-control applications in future.  The FCA is keen to ensure that consolidation does not prejudice good client outcomes on a long-term basis, and the review highlights areas of focus which acquirers will need to respond to in complying with their regulatory requirements. As such, we expect a more rigorous approach by the FCA to the areas highlighted as part of the change-in-control process, as well as in ongoing supervision.

These aspects are also relevant to sellers, as they are likely to favour buyers with robust structures that demonstrably comply with these requirements.

Firms that proactively address the themes highlighted in the FCA’s review will be well‑placed to navigate regulatory expectations and execute successful transactions.