The Financial Conduct Authority (FCA) states that 4,000 out of 23,000 financial services firms asked in a survey, found that at the end of October they had low financial resilience and faced a greater risk of failure.
This suggests that those 4,000 firms were at heightened risk of collapse due to the coronavirus pandemic, before the second wave had even struck!
Further analysis found that around 30% of these firms, being small businesses, had the potential to cause harm if they fell bust.
Despite this the FCA urged caution over the data, stressing that the survey was carried out prior the recent furlough scheme extension, vaccine rollout and the latest English lockdown restrictions were implemented.
Sheldon Mills, executive director of consumers and competition at the FCA remarked: ‘’Our role isn’t to prevent firms failing, but, where they do, we work to ensure this happens in an orderly way. By getting early visibility of potential financial distress in firms we can intervene faster so that risks are managed and consumers are adequately protected’’.
The survey showed that insurance intermediaries and brokers, payments and electronic money and investment management firms suffered a drop in ‘liquid assets’ i.e. cash, which is key to their resilience amid a crisis.
Also, 59% of those surveys saw a fall in net income from the first wave of the pandemic and lockdown. 72% of these 59% of firms expected an impact of up to a quarter.
This survey was carried out to assess the resilience of financial services firms to the coronavirus crisis. The 1,500 largest firms across the sector were not covered in this survey. The survey came after an independent report had condemned the FCA for failing to properly regulate and supervise mini-bond operation London Capital & Finance before it went into administration. It left 11,600 investors facing losses of £237 million. The FCA had no other choice but to react by placing greater focus on its internal authorisation and supervision processes, putting pressure on the regulator to keep a closer eye on struggling firms.
Find the full FCA survey results here