Some 4,000 financial services firms are at risk of failing as a result of the impact of the pandemic on their solvency, analysis by the Financial Conduct Authority (FCA) has shown
The regulator surveyed 23,000 solo-regulated firms as part of a project assessing the impact of coronavirus on firms’ financial resilience.
The survey results show that between February (pre-lockdown) and May/June (during the impact of the first lockdown), firms across the sectors experienced significant change in their total amount of liquidity.
Three sectors saw an increase in liquidity between the two reporting periods: retail investments (8%), retail lending (8%) and wholesale financial markets (83%), with the latter seeing the greatest increase.
The other three sectors saw a decrease in available liquidity: insurance intermediaries and brokers (30%), payments and e-money (11%) and investment management (2%).
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%, while a minority (3%) expected the impact to be 76%+ within the next three months of the survey being taken.
The payments and e-money sector has the lowest proportion of profitable firms, while the greatest decrease in profitable firms between February and May/June was seen in the retail lending sector (10 percentage points) followed by payments and e-money (9 percentage points).
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).
Sheldon Mills, FCA executive director of consumers and competition said: ‘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.'