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Case study: Regulatory due diligence
We created an action plan to bring the target firm up to scratch prior to the acquisition and reduce conduct risk.
The challenge
A large financial planner and discretionary fund manager was rapidly expanding and was on the cusp of acquiring an independent financial planning firm. But our client had come across some instances in the target firm’s past business where customer detriment could have occurred. Our client knew it needed a clear picture of the material risks but didn’t have the resource or expertise to spare. Having worked with us before, our client knew we had the experience needed for a full regulatory due diligence assessment, as well as a discreet look at the target firm’s back book.
Our solution
Having taken the time to understand our client’s risk appetite and business needs, we recommended a review that focused on the effectiveness of the target firm’s senior management team and compliance oversight and controls.
With the focus agreed, we took a two-phase approach to the due diligence project:
- In-depth review: we analysed the target firm’s business model, conflict management, advice proposition, systems and controls, documented policies and procedures, and reviewed some past business files.
- Site visit: we visited the firm’s site for two full days to understand the day-to-day operations and internal culture, and how closely this aligned with FCA expectations.
Having dug a little deeper, we saw that many of the past business issues stemmed from cultural influencers, such as inadequate adviser controls and oversight. This could cause a real issue for our client, potentially exposing them to expensive rectification should they go ahead with the acquisition. So, we created a detailed action plan that would bring the firm up to scratch prior to acquisition and reduce conduct risk further down the road.
Our client now had a clear picture of the risks of acquisition. What’s more, we also advised our client on how it could address some of the mismatches between the two company cultures, making for better integration and a less disruptive transition.
The TCC Difference
- Our deep understanding of how culture affects conduct risk meant we immediately saw that culture was the root cause of the unsuitable advice. By establishing a detailed action plan before acquisition, we saved our client time, money and disruption in the long run.
- Every firm is different. Taking a flexible approach, we tailored our review to our client’s risk appetite and specific business needs, so we could focus on what’s most important.