Platform technology company FNZ has disputed the competition watchdog’s “outdated” view of the platform market, claiming the regulator’s poor understanding of the space had hampered its takeover of rival GBST.
In FNZ’s submission to the Competition and Markets Authority's probe of the merger, published this week (May 20), the software provider said the CMA's view of the platform market was “no longer meaningful” and had caused a frame of reference which was “excessively narrow and artificial”.
The CMA in its probe had distinguished between retail and non-retail platforms, and considered FNZ and GBST’s main clients to be retail platforms.
Therefore when studying the market in which FNZ and GBST worked, the competition watchdog only looked at other software providers in the retail platform space, which, FNZ argued, had eliminated a lot of real life competition on paper.
It stated: “Distinctions that once existed between platform types, and which appear to have shaped and informed the CMA’s analysis, are no longer meaningful.
“Over the past 15 years regulatory and technological developments have driven convergence across platforms, which is only set to continue.
“Distinctions that might once have existed between wealth management platform types — for example financial planning or private client wealth management firms — are outdated.”
FNZ and GBST had agreed a merger deal worth £220m last summer but the CMA began investigating the agreement in November 2019.
In March it referred the merger for a “phase two” investigation and pushed forward with its probe, arguing FNZ was already in a strong position in the platform market, the two companies were close competitors, there were limited external constraints and the merger would have a bad effect on the market.
FNZ claimed the CMA’s view was largely based on “legacy financial planning firms” as other platform clients, such as private client wealth management and private banks, were considered “non-retail” by the watchdog.
It said: “This distinction is not meaningful today. Wealth management platforms have become more similar.”
According to FNZ’s submission, the competitions regulator regarded platforms such as St James’s Place, Hargreaves Lansdown and Aegon Cofunds to be ‘retail’, while Rathbones, Investec, Brewin Dolphin and Tilney’s platform’s were ‘non-retail’ — despite FNZ asserting the needs of servicing were similar from a software provider’s point of view and it was “erroneous” to define the market on this basis.
By opening up the CMA’s scope to include non-retail platform solutions providers, numerous significant competitors remained on “any plausible approach”, FNZ argued.
It stated: “[FNZ and GBST] will have a combined share of less than 30-40 per cent and compete against numerous reputable players – including SS&C, Bravura, Avaloq, Temenos, SEI and Iress - with shares larger than or similar to GBST (0-5 per cent).
“[The merged firm] will also face strong competition from global players such as TCS BaNCS and Pershing. Even on the CMA’s very narrow frame of reference, FNZ will remain subject to significant constraints.”
FNZ claimed the CMA had also not taken proper consideration of a range of challengers in the market such as Hubwise, Third Financial, Multrees, Focus Solutions, GPP Wealth Solutions and Octopus/Seccl, who it claimed were “winning and retaining platform business”.
Other rebuttals to the CMA put forward in FNZ’s submission included the fact FNZ and GBST “rarely competed head on” and therefore were not “close competitors” and that GBST was a weak rival which was “getting weaker”.
CMA's phase two investigation is expected to be completely by September 2020.
imogen.tew@ft.com
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