Wealth manager Rathbone Brothers is in exclusive talks with British financial services provider Smith & Williamson over a possible all-share merger.
Rathbones confirmed the discussions after media speculation, saying:
"Whilst these discussions have been underway for some time and the boards of both Rathbones and Smith & Williamson are confident that the combination would bring meaningful benefits for the stakeholders of both businesses, discussions are ongoing and there can be no certainty any transaction will be agreed.
"However, if agreed, any such transaction will be subject to the approval of shareholders."
Sky News earlier reported that Rathbones was close to agreeing the formal terms of a £2bn deal, giving Smith & Williamson nearly a £600m valuation.
The merger would boost the consolidation of the wealth management sector and would be one of the City's top deals so far this year, if completed.
Sky said a deal was expected to be announced within weeks, although it could be delayed.
Rathbones said a further announcement would be made when appropriate.
Rathbones, which has a market value of about £1.4bn and is listed on the FTSE 250, last month reported profit before tax rose 16.7 per cent in the first half of the year to £26.6m.