City watchdog warns COVID-19 puts 4,000 firms at risk of collapse

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
LONDON, ENGLAND - JANUARY 04: A general view of the Canary Wharf business district on the Isle of Dogs on January 04, 2021 in London, England. England has seen a rising number of covid-19 cases in recent months, driven in part by a new variant of the virus that officials say is more infectious. The Prime Minister, Boris Johnson, is to make a televised statement to the nation at 8pm GMT, where he is expected to lay out new, more stringent lockdown measures. (Photo by Dan Kitwood/Getty Images)
A general view of the Canary Wharf business district on the Isle of Dogs on 4 January, 2021 in London, England. Photo: Dan Kitwood/Getty Images

The coronavirus pandemic has pushed 4,000 financial firms to the brink of potential collapse, the City watchdog has warned.

The Financial Conduct Authority (FCA) said on Thursday that a survey of 23,000 companies it regulates found that almost one in five — 17% — were at “heightened risk of failure” as a result of COVID-19.

“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.

“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.”

The FCA said the firms at risk of failure had seen their cash reserves run low during the crisis as business had dried up. The worst-hit sectors were insurance brokers, payment firms, and investment management businesses.

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“Our role isn’t to prevent firms failing,” Mills said. “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.”

Worryingly, the FCA’s survey was conducted in June and August — before the second and third lockdowns were announced. The recent restrictions are likely to put even greater stress on many businesses.

“We are in an unprecedented — and rapidly evolving — situation,” Mills said. “This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms.”

The FCA promised to repeat it survey as the situation evolves. The regulator said the results did not reflect the government’s recent extension of its furlough scheme and business support programmes, nor positive vaccine news.

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