More than 4,000 regulated firms are at risk of failing due to the ongoing covid-19 pandemic and a third of those have the potential to cause harm if they go under, according to figures released by the UK's Financial Conduct Authority (FCA) today.
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.
This was defined as cash, committed facilities and other high-quality liquid assets. Three sectors saw an increase in liquidity between the 2 reporting periods: Retail Investments (8%), Retail Lending (8%) and Wholesale Financial Markets (83%), the latter seeing the greatest increase.
The other three sectors saw a decrease in available liquidity: Insurance Intermediaries & Brokers (30%), Payments & E-Money (11%) and Investment Management (2%).
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."
Keith Richards, chief executive of the Personal Finance Society, was critical of the lack of a "proactive plan" from the regulator: "It is concerning that the FCA has determined 4,000 firms across three key areas are deemed at risk."
Richards added: "I am surprised that there is no indication of a proactive plan to help mitigate possible failures during these unprecedented times. It is important to protect the interests of the consumers who may also be impacted as well as avoid further financial pressure being placed on the rest of the sector."
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