"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."
The FCA has published the results of its Covid-19 financial resilience surveys, showing that around 4,000 solo-regulated firms are are 'heightened risk of failure' as a direct result of the pandemic.
The surveys were sent to 23,000 solo-regulated firms to understand the effect the pandemic is having on the finances of the firms the FCA regulates. By the end of October, the FCA had identified 4,000 financial services firms with low financial resilience.
The survey results show that between February and May/June during the impact of the first lockdown, firms across the sectors experienced significant change in their total amount of liquidity. This was defined as cash, committed facilities and other high-quality liquid assets.
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.
The payments and e-money sector has the lowest proportion of profitable firms, followed by wholesale financial markets, investment management, insurance intermediaries and brokers, retail lending and retail investments.
Proportionately, retail lending had made most use of the available government support (49% of firms had furloughed staff and 36% had received a government backed loan), followed by insurance intermediaries and brokers (44% had furloughed staff and 19% had received a loan).
The FCA noted that this survey was conducted before the extension of the government’s furlough scheme, the positive vaccine developments and the announcement of new rules and restrictions.
Sheldon Mills, executive director of consumers and competition at the FCA, 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."