The CMA, which has been probing the deal since November, says the merger raises “competition concerns” and customers could lose out if it went ahead in its current form.
The deal raises concerns in the “provision of retail investment platform solutions in the UK,” said the CMA. The CMA is primarily concerned about the loss of competition the merger could cause.
The competition regulator says FNZ must address its concerns within five working days or face an in-depth investigation.
The CMA believes there is a risk the merger could mean higher prices, fewer options and less innovation.
FNZ purchased GBST in November 2019 and both companies have a significant presence in the UK platform market. They provide the ‘engines’ behind most of the UK’s biggest retail investment platforms.
FNZ clients include Aviva, Barclays, HSBC, Lloyds Banking Group, National Australia Bank, Quilter, Santander, Standard Life Aberdeen, UBS, Vanguard and Zurich. GBST clients include AJ Bell, Raymond James and Vitality.
The CMA said that after completing its initial Phase 1 investigation, it found that FNZ and GBST were “close competitors” in what is a concentrated market with “few other significant suppliers.”
Smaller or less well-established firms have found it difficult to enter or scale up because of the risks and reluctance of customers to change suppliers, said the CMA which is chaired by former Treasury Select Committee chair Andrew Tyrie.
The CMA says it undertook extensive market testing and looked at evidence from a number of third-party stakeholders including investment platforms, external consultants, competitors and industry bodies. It also examined the companies’ internal documents and assessed the extent of competition in recent tenders in this sector.
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 must now address the CMA’s concerns within 5 working days. If it is unable to do so, the deal will be referred for an in-depth (Phase 2) investigation.”