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Competition Watchdog Slaps Down Fintech Merger

In an unusual move sure to provoke comment, the UK's competition watchdog has blocked the merger of two fintech firms, arguing that the enlarged entity would have have dominated a section of the wealth and technology sector. The action shines a light on industry consolidation, choice and barriers to entry in this space.
The UK’s Competition
and Markets Authority yesterday ruled that wealth technology
firm FNZ’s purchase of Australia-listed rival GBST in November
last year could cause a “substantial” cut in competition. Options
include FNZ selling all or
part of GBST, the agency said in a statement.
FNZ’s purchase of the Brisbane-based firm is controversial
amid concerns that it would create a business dominating the
market. The CMA’s statement said the merged business would have
been “by far the largest supplier in the UK, holding close to 50
per cent of the market”.
London-based FNZ agreed a £150 million ($196.9 million) deal
to take over GBST, media reports had said at the time. Its
competitor, Bravura, had agreed a non-binding deal to buy GBST
earlier in 2019, but FNZ made an offer that pushed that deal
aside.
“Following its in-depth ‘Phase 2’ investigation, the Competition
and Markets Authority (CMA) has provisionally found that FNZ’s
purchase of GBST could result in a substantial lessening of
competition. This could lead to UK consumers who rely on
investment platforms to administer their pensions and other
investments facing higher costs and lower quality services,” the
CMA said.
The CMA, which had flagged its concerns back in March this year,
said it provisionally considered that FNZ and GBST compete
closely in a concentrated market with “few other
suppliers”.
The regulator’s decision to slap down the deal and call for a
partial or wholesale divestment of the acquisition highlights how
consolidation in the fintech sector is causing concerns about
choice and competition. The stakes are high at a time when rising
regulatory pressures on firms often force them to hike tech
spending. Rising client expectations and the COVID-19 pandemic
have accelerated demand for digital innovation, giving arguably
more market leverage to tech firms.
Competition
“In particular, the CMA’s investigation found that FNZ and GBST
have competed consistently against each other in recent tenders
to supply major investment platforms in the UK and that customers
view them as close alternatives,” the CMA said.
Only one other supplier, Bravura, offers similar
capabilities, the regulator continued.
“The evidence we’ve seen so far consistently points in the same
direction – that FNZ and GBST are two of the leading suppliers
within this market and compete closely against each other. That’s
why we’re concerned that their merger could lead to investment
platforms, and therefore indirectly millions of UK consumers who
hold pensions or other investments, facing higher fees and lower
quality services. We’re now inviting comments on our provisional
findings and possible remedies,” Martin Coleman, chair of the CMA
inquiry group, said.
“FNZ notes that the CMA has published the provisional findings of
its phase two investigation into the acquisition of GBST. We have
no comment at this stage," a spokesperson for FNZ told this
publication when asked about the matter yesterday.
Other deals
In July last year FNZ acquired wealth management technology
provider JHC to form one of the top broking platforms in the UK.
London-based JHC’s platform technology underpins a number of
prominent asset managers, including AJ Bell, Brooks Macdonald,
Charles Stanley, LGT Vestra and Quilter. More specifically, the
firm’s Figaro, Neon, and Xenon software services are widely used
by financial advisors for managing portfolios and risk analysis
down to meeting ever changing compliance needs.
In February this year, FNZ, said that it had secured an
investment from Temasek, the Singapore-based sovereign wealth
fund. Temasek joined existing investors Caisse de dépôt et
placement du Québec (CDPQ) and Generation Investment Management
LLP (Generation), who acquired a majority stake in FNZ in October
2018, in a deal that valued the company at nearly £1.7 billion at
the time.