Up to 4,000 financial services groups are at a heightened risk of failure due to the coronavirus pandemic, the UK regulator has warned, and nearly a third of these “low resilience” businesses could cause harm to consumers.
In an industry-wide survey of the impact of Covid-19, the Financial Conduct Authority said on Thursday that insurance, payments and e-money, and investment management groups had suffered a decrease in their available cash, borrowings and liquid assets during the spring lockdown.
Of the 23,000 companies studied, six in 10 said they expected the coronavirus crisis to have a negative impact on their net income. Most of these expected the impact to be between a 1 and 25 per cent reduction but almost 700 firms said that income would fall by more than three-quarters.
“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. “These are predominantly small and medium-sized firms and approximately 30 per cent have the potential to cause harm in failure.”
The regulator said its role was not to prevent companies failing, but instead to ensure that those going out of business did so 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,” Mr Mills explained.
In the FCA survey, the payments and e-money sector had the lowest proportion of profitable companies, followed by wholesale financial markets, investment management, insurance, retail lending and retail investments.
Retail lending companies have made most use of government support schemes, with 49 per cent of groups furloughing their staff and 36 per cent receiving a government-backed loan. By contrast, 8 per cent of investment management firms used the furlough scheme while 3 per cent took an emergency loan.