Friday, 19th April, 2024
Friday, 19th April, 2024

Around 4,000 financial firms at risk of collapsing due to Covid, says UK regulator

Around 4,000 financial firms in Britain were at “heightened risk” of collapsing due to fallout from the first wave of the pandemic, the Financial Conduct Authority said on Thursday.

The FCA surveyed 23,000 financial firms to check on their resilience to Covid-19, which last year triggered Britain’s worst economic downturn in 300 years.

“At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure,” said Sheldon Mills, the FCA’s executive director of consumers and competition.

“These are predominantly small and medium sized firms and approximately 30% have the potential to cause harm in failure.”

The FCA faced strong criticism that it was “deficient” in handling the collapse of the London Capital & Finance investment fund in 2019, and the watchdog is under heavy pressure to avoid delays in mitigating harm to investors from other struggling companies.

The survey showed that insurance intermediaries and brokers, payments and electronic money, and investment management firms showed a drop in liquid assets like cash that is needed to bolster their defences in a downturn.

But the FCA urged caution in interpreting the survey’s results.

“In addition, 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,” the watchdog said.

The survey looked at financial firms that are only regulated by the FCA, and did not cover the 1,500 largest firms in the financial sector which are regulated for financial stability by the Bank of England’s Prudential Regulation Authority.

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