Policy and regulatory considerations for deal makers
State of play
- Consolidation is fast becoming the buzzword in analyst circles for the retail banking sector, hot on the heels of a spate of merger announcements and a macroeconomic context favouring the larger players. We may see further acquisitions by larger banks of smaller ones, or consolidation among challengers for scale benefits.
- In her recent Mansion House speech, the Chancellor outlined a regulatory reform agenda that could create further impetus, including changes to post-crisis ring-fencing rules, potentially opening up new strategies that alter the commercial logic of future acquisitions.
Jeopardy
- M&A in retail banking requires deft political and regulatory handling. Acquisitions, especially by the big players, are likely to undergo formal investigation by the CMA (with the FCA playing an influential advisory role), and will require change of control approval from the PRA.
- More broadly, the CMA’s approach to mergers is evolving, following political pressure to be aligned with the government’s growth agenda. While this should deliver a more transparent, efficient, and sometimes more permissive process for parties, the fundamentals of investigating mergers where there is a risk of reduced competition mean the CMA’s approach to retail banking M&A is unlikely to change in any fundamental way. It will still take a dim view of mergers where there are risks to competition, and its stance will be influenced by the fact that mass market consumer banking services are largely still supplied by the same major banks.
- The FCA will be focused on issues such as consumer protection and access to cash – and its views will be especially influential on the CMA. In challenger consolidation its focus will be on financial crime compliance and the risks and opportunities around it associated with the acquisition.
- Deals will also be politically sensitive, particularly where concerns exist over the impact on access to cash, SME banking, or IT resilience. Bank M&A is especially likely to attract political attention because every MP has a stake in the game through their constituency branch network. Even the most commercially sound deals will face the jeopardy of political attention, which, if insufficiently anticipated and handled, can transform into tangible risk, e.g. in the form of formal government intervention or pressure on the regulators. Indeed, the CMA’s increasing responsiveness to the political environment could cut in either direction on a specific case.
How Flint can help
- Complex transactions like this require a good team of financial and legal advisers but also people who understand how regulators, policymakers and politicians think and operate.
- Our team includes former CMA, FCA and Bank of England economists and officials who understand how changes of control in the sector are managed and competition investigations are approached. They sit alongside our political experts who know how these transactions are viewed through the lens of government and Parliament, and how to navigate formal tools for political intervention. Together, they have experienced the impact of political pressure on regulators. In addition, our Financial Services team, drawn directly from the sector, provides the industry know-how to contextualise and shape our advice.
- If you are interested in these issues or considering transaction activity in this space, please get in touch.
This blog was written by Directors Verity Ryan, Adam Hendry and Nick Seaford. Verity advises M&A clients on policy, political and regulatory issues involved in transaction clearance. Adam advises clients on regulatory, policy and economic issues with a focus on financial services and technology. Nick advises clients on competition, regulatory, and policy issues, as well as the UK Labour Party.
