ACA, the compliance consultancy and software group, has received the approval of various regulators to absorb the products and services of Cordium, another compliance and cyber-security firm, and is now in the process of doing so. In this article we talk to Ron Weekes, ACA's European CEO, about the momentous merger.

Governance, risk and compliance, otherwise known as GRC, has been touted as the cure-all for all of today's regulatory woes at financial firms large and small. The merged entities believe that GRC has never been a higher priority for financial firms and that their new firm is "the only market participant capable of providing all GRC solutions, an attractive prospect for financial firms intent on accelerating respective business goals and serving clients without regulatory headwinds." As of today, ACA employs nearly 700 people (200 acquired from Cordium) and provides products and services to more than 4,000 clients all over the world. The financial terms of the transaction have not been publicised.

ACA will incorporate Cordium’s compliance, cybersecurity, and technology products and services into its existing offerings. Notably, ACA’s completion of the Cordium acquisition will allow ACA to expand its products and services to include tax services, financial and regulatory reporting, Mirabella (Cordium’s regulatory platform, more of which later) and a post-Brexit EU office in Malta. Over the next few months, the fused entity's teams will merge their technological products and services. ACA plans to absorb Cordium’s Compliance ELF (employee-level filing) product, a code of ethics and employee compliance management tool, into its own ComplianceAlpha product. ACA and Cordium clients will experience no disruption of service as a result of the acquisition.

In February 2018, ACA struck up a partnership, which the merged company will continue, with Starr Investment Holdings to support its expansion in the global GRC marketplace. Over the last few months, ACA has also worked closely with a team from Cordium to develop its plans for integration.

Compliance Matters spoke to Ron Weekes, the head of ACA in Europe, about the merger. The rest of this article is in the form of a question-and-answer session.

Q: ACA is taking over Mirabella, which describes itself as a regulatory hosting platform. What is that?

A: It provides a platform on which firms can conduct regulated activities without seeking their own licences from the regulators or while they are waiting to be authorised. Regulatory approval in the UK can take 6-7 months, during which time the regulators go through their due diligence; Mirabella allows a firm to be operational much earlier than that, often in a matter of weeks. Firms have provided this solution before, but Mirabella took it a stage further - firms can stay on it even once they receive their own licences and obtain authority. There is no regulatory rule to say that you cannot stay on when you get authority. The firms out there (including MJ Hudson, Sturgeon Ventures and Langham) that provide similar solutions don't keep them on after approval.

Mirabella provides small start-ups and boutique firms with a greater depth of compliance than they can achieve on their own, because of their size, which is why they stay on it. It's also very popular for firms coming into the UK, as it lowers the barrier to entry for foreign firms (especially American ones) into the British market slightly and that's good for London. We expect to see a surge in the number of American firms that use it, although that hasn't happened yet. There aren't so many broker-dealers on the sell-side using it, but advisors and fund management buy-side firms are doing so. Sometimes a discretionary investment function is moved onto the platform in London, at other times it is the investor relation, marketing and fund or product distribution teams.

There are about 70 firms on Mirabella at the moment. It offers them two options. You can go down the appointed representative or AR route. If you do this, you can't make discretionary investment decisions, but you can provide investment advice and arrange deals in investments, marketing etc. The second option is that Mirabella allows alternative investment fund managers (AIFMs) to operate funds. Some others are advisory only. The regulators recognise these as viable solutions.

Q: Is the London office of Cordium a major addition to the group?

A: It's the biggest office by far, outside the US. The combined Cordium and ACA offices in London house around 150 people, and most of those came from Cordium. It was lucky that we had additional floor space in the Cordium building. The combined New York office has fewer people from Cordium than from ACA. It's about the same size as the London one.

Q: ACA is originally American and Cordium is originally British. Would you say that the United States is a difficult country not only to break into but also to break out of?

A: Yes. That's a very good question. Well, yes and no. There are complications on both sides. The FCA authorisation process is longer and more involved, which makes it harder to come to the UK. In the US, you complete all your forms and send them to the Securities and Exchange Commission, and then you receive authorisation 45 days later. Very rarely do they come in and ask questions about the forms. Very rarely do they interact with the applicant.

Q: That might have less to do with a clash of cultures and more to do with the way the regulators are funded. The FCA operates by guild regulation, with its cowed flock having to pay it tribute from their own pockets, whereas the SEC receives its funding - always inadequate - from the Government by Congressional approval each year. The SEC therefore has fewer resources to put into the authorisation process and has to concentrate more of its efforts in enforcement and tough penalties. It has 12,000 firms to regulate while spreading itself thinly, so it has to rule by fear.

A: Yes, I think that's why the FCA is a harder club to get into. After authorisation, of course, the SEC is the more daunting prospect.

Q: What firms are coming over?

A: Often alternative investment managers and advisors – hedge funds, private equity and real estate investment management firms. Similar to that are firms that want a European presence for investor relations, marketing and distribution. We don't see a huge flurry of small boutique wealth management firms coming to London, although some do. A non-discretionary fund manager marketing a fund to investors in Europe will want to come - that's a pretty tough thing to do from New York, Boston or Chicago. The firms that do this are often bigger firms but sometimes they are small start-ups. We do 50-60 regulatory applications for Part 4A permissions from the FCA per annum. Future applicants could be spin-offs from the second or third wave of hedge funds. They still require licensing, potentially using Mirabella in the meantime.

Q: What of your other offices?

A: There are approximately 20 people in our Malta office – our only other European office at this time and a smaller office in Hong Kong. Outside London and New York, probably the next biggest combined office is in San Francisco. Historically, in the US, ACA has opened an office wherever the SEC has a main office. We have 15 offices in the States and three outside.