Thistle's Initiatives Due Diligence Requirement for Buying a Financial Services Business

Thistle Initiatives – Award-winning compliance consultancy providing expert compliance advice and support across the financial services sector.

Due diligence on the purchase or sale of an FCA regulated firm is a complicated process that brings with it considerable risks. If you have a transaction involving a regulated firm in mind, what are the areas that you would need to think about?

Due diligence for purchasers

The first necessary step will be an initial scoping exercise looking at the target firm’s senior management controls, culture and regulatory history, and its potential financial exposure from legacy advice or the management of assets. This exercise should result in an initial report flagging up any risks or issues before the purchaser appoints accountants and solicitors and starts incurring significant costs.

Assuming that the initial findings are positive, a full acquisition due diligence exercise should then be carried out, covering everything from operations, systems and controls, advice, investment management and IT to culture. This should result in a detailed report, adopting a risk-based approach agreed in advance to advise the purchaser on the implications of its findings, ranked according to their significance.

The regulatory due diligence exercise on an acquisition would typically scrutinise the following areas:

  • Audit of internal governance and systems and controls against FCA requirements,
  • Audit of IT governance, systems, and controls,
  • Review of FCA permissions against activities being undertaken,
  • Review of FCA correspondence history (including any disciplinary action),
  • Review of FCA financial returns and compliance with prudential requirements,
  • Review of the customer onboarding process, client risk profiling, advice suitability, fees and other core regulatory processes,
  • Review of client money and custody assets controls and supervision,
  • Past business review of advice or management of assets,
  • Review and understanding of all investments sold (standard and non-standard),
  • Where relevant, suitability file reviews on defined benefit pension transfer advice (including specific file checks),
  • Review of all SM&CR Senior Managers and Certification Function Persons’ roles, responsibilities and contracts,
  • Review of complaints history, and
  • Review of the overall compliance regime, including review of key regulatory changes (i.e., RDR, IDD, AML4, MiFID II, GDPR, SM&CR) and how they have been implemented and risk-assessed within the business.

The risk-assessed report, which should be presented to the purchaser’s board and investment committee, should highlight key issues and risks, together with a mitigation plan.

If the purchaser decides to proceed with the transaction, where the buyer is acquiring the target firm, it will entail an FCA Section 178 change of control application. The change of control needs to be approved by the FCA before the transaction can be completed.

Due diligence for sellers

A seller may need to be prepared for either a full or partial sale. If seeking investment, the seller will need to be prepared for the questions likely to be asked about the business and its senior management.

We have worked on several projects where we have acted for a seller to prepare for a sale. Using our approach detailed above, we reverse the buyer due diligence and conduct an audit and ensure that when a potential buyer appoints a third party to conduct due diligence, the seller is prepared and ready for due diligence.

Preparation is key.

Client work

Our completed regulatory due diligence projects over the last twelve months have included the following transactions:

  • Oaktree Capital Management’s acquisition of Sanlam Wealth UK, subject to regulatory approval
  • Lightyear Capital LLC’s acquisition of Wren Sterling Financial Planning
  • Copper Street Capital LLP’s acquisition of One Four Nine Group
  • One Four Nine Group’s acquisition of Rice Watmough Crozier LLP & Charter Wealth Management
  • Ascot Lloyd Financial Services Ltd acquisition of multiple FCA regulated entities
  • Cabot Square Capital LLP’s acquisition of MKC Wealth
  • MKC Wealth’s acquisition of Lighthouse Carrwood
  • Craven Street Capital’s acquisition of Kreston Reeves Financial Planning Ltd and Christchurch Investment Management Ltd

How can Thistle Initiatives help?

Working with us, you can be confident that all potential issues around your prospective transaction have been identified and highlighted in our acquisition due diligence report.

You can also count on us for effective practical guidance on how best to resolve any issues uncovered.

For more information about our acquisition due diligence services, call 0207 436 0630 to speak to a member of our team or email Alternatively, you can directly contact our CEO and founder James Dingwall or Investments Director Alex Paschalis.

James Dingwall

Since setting the business up in 2012, James has grown the Thistle Initiatives Group to encompass four different companies employing more than a hundred people. Before that, he spent ten years in roles at two of the Big Four accountancy firms. With expertise spanning all sectors of financial services, James has extensive experience managing and implementing change programmes within large financial institutions and regulatory due diligence. A chartered member of the CISI, he currently focuses on client work involving regulatory supervision and enforcement, the approved persons regime, and complex tech related FCA applications.


Alex Paschalis

Alex joined Thistle Initiatives in February 2015 after two decades working with complex financial products. His experience includes ten years as a proprietary trader covering FI and energy products, from open outcry to screen-based trading. Immediately prior to joining Thistle Initiatives, Alex was a front-office compliance business analyst within a multi-asset trading team covering equities, FI, FX, commodities and CFDs. His areas of specialisation include discretionary and advisory investment management, investment compliance, FCA authorisation, variations, enforcement actions, systems and controls and financial crime auditing. Alex holds a CISI diploma in investment compliance and a CFA certificate in investment management.

Email:| 0207 436 0630 |

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