Almost 4,000 regulated firms in the UK were at risk of failing in October and 59% of companies believe Covid-19 will have an adverse effect on their business, according to research from a City watchdog.
Having analysed responses from 23,000 solo-regulated firms about their pandemic resilience, the Financial Conduct Authority (FCA) has found that the outlook for businesses in the UK had turned sour once the pandemic broke out.
The FCA surveyed people about their experience between February on the one hand, and May and June on the other. The regulator found that firms across several sectors had experienced significant change in their total amount of liquidity. This was defined as cash, committed facilities and other high-quality liquid assets.
Three sectors experienced a significant decrease in available liquidity over the period: insurance intermediaries and brokers experienced a 30% drop, payments and e-money vendors saw a 11% decline, and investment management firms saw a 2% decrease in liquidity over the period.
“We are in an unprecedented – and rapidly evolving – situation,” said Sheldon Mills, executive director of consumers and competition at the FCA. “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 [that] 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.”
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%. Three per cent expected the impact to be more than 76% within the next three months of the survey being taken.
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