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Watchdog puts brakes on FNZ and GBST merger

Watchdog puts brakes on FNZ and GBST merger

The competition watchdog has raised red flags over the merger of two platform technology companies, saying the move could lead to “higher prices, fewer options and less innovation” in the retail platform market.

The Competition and Markets Authority announced today (March 30) it has completed its phase one investigation into FNZ’s binding agreement to take over GBST and found the two were “close competitors” in a “concentrated market”.

FNZ and GBST — two of the three major tech providers for UK adviser platforms — had agreed a buyout worth £220m last summer but the watchdog began investigating the agreement in November 2019.

The number of companies involved in back-office platform technology is small, with GBST, FNZ and Bravura providing the technology for 71 per cent of the assets under management in the platform space, according to investment bank Liberum.

During its investigation, the CMA found smaller or less well-established firms found it difficult to enter the market or scale up because of the risks and reluctance from customers to change suppliers.

It also found FNZ had a particularly strong position in the supply of platform tech servicing and that GBST was one of only a few rivals that exerted a competitive constraint on FNZ in this remit.

The CMA believes customers of FNZ and GBST — such as Old Mutual and Aegon — could be left in a weak negotiating position due to the lack of credible alternatives and this could result in price rises and a reduction in quality.

Joel Bamford, senior director of mergers at the CMA, said: “Investment software is critical to the operation of retail investment platforms which are used by many investors in the UK.

“FNZ is already the largest supplier and has purchased an established rival who is trusted by many platforms, with few remaining competitors left in the market. We are therefore concerned that this transaction could lead to customers losing out.”

FNZ has been given five working days to address the CMA’s concerns. If it does not, the deal will be referred for a more in-depth investigation.

Clive Waller, managing director of CWC Research, said he was surprised the CMA had raised flags on the merger, saying there were “more suppliers of platform tech than major audit firms or high street banks”.

But he added: “FNZ powers a huge proportion of the sector, especially the life sector. Bravura is the only other game in town.”

Ben Hammond, platforms director at Altus, said: “I think it was inevitable that the CMA would require further clarification from FNZ as to how they will go about bringing the two businesses together, in particular as the merger would mean they will manage around two thirds of UK adviser platform AUA.  

“The short timeline of five days for FNZ to respond to concerns seems harsh, especially given the current situation, and so I would assume that FNZ will be pulling out all the stops to ensure the deal is kept alive.”