FCA: thousands of firms “at heightened risk of failure”

The UK Financial Conduct Authority (FCA) has published the results of its coronavirus (Covid-19) financial resilience surveys, as part of monitoring the effects of the economic downturn on firms’ solvency.

When asked whether they expected coronavirus to have a negative impact on their net income, 59% of respondents had said that they did. Of these, 72% expected the impact to be between 1% and 25%. 3% expected the impact to be 76%+ within the next three months of the survey being taken.

Sheldon Mills, executive director of Consumers and Competition said: ’We are in an unprecedented – and rapidly evolving – situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms.”

”A market downturn driven by the pandemic risks significant numbers of firms failing. At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though 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.

‘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 Payments & E-money sector has the lowest proportion of profitable firms, followed by Wholesale Financial Markets, Investment Management, Insurance Intermediaries & Brokers, Retail Lending and Retail Investments.

Proportionately, Retail Lending had made most use of the available government support (49% of Retail Lending firms had furloughed staff and 36% had received a government backed loan), followed by Insurance Intermediaries & Brokers (44% had furloughed staff and 19% had received a loan) and Retail Investments (37% had furloughed staff and 15% had received a loan).

The survey was conducted before the extension of the government’s furlough scheme, the positive vaccine developments and the announcement of new rules and restrictions. The FCA will repeat the survey as the situation evolves.