Up to 4,000 financial firms are at a heightened risk of failure due to the COVID-19 pandemic, the UK regulator the FCA warned.
January 07, 2020 | AtoZ Markets – The coronavirus pandemic has pushed 4,000 financial firms to the brink of potential collapse, the Financial Conduct Authority (FCA) has warned.
The City watchdog said on Thursday that a survey of 23,000 companies it regulates found that almost one in five — 17% — were at “heightened risk of failure” as a result of COVID-19.
“A market downturn driven by the pandemic risks significant numbers of firms failing,” said Sheldon Mills, the FCA’s executive director of consumers and competition.
FCA warns 4,000 financial firms risk failure in Covid-19 pandemic
At end of October, the FCA identified that there are 4,000 financial services firms with low financial resilience and at heightened risk of failure. However, the regulator noted that many will be able to bolster their resilience as and when economic conditions improve. “These are predominantly small and medium sized firms and approximately 30% have the potential to cause harm in failure,” FCA says.
The FCA said the firms at risk of failure had seen their cash reserves run low during the crisis as business had dried up. The worst-hit sectors were insurance brokers, payment firms, and investment management businesses.
“Our role isn’t to prevent firms failing,” Mills said. “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.”
Worryingly, the FCA’s survey was conducted in June and August — before the second and third lockdowns were announced. The recent restrictions are likely to put even greater stress on many businesses.
“We are in an unprecedented — and rapidly evolving — situation,” Mills said. “This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms.”
The FCA promised to repeat it survey as the situation evolves. The regulator said the results did not reflect the government’s recent extension of its furlough scheme and business support programmes, nor positive vaccine news.
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