The Financial Conduct Authority (FCA) has released the findings of a survey that projected the financial resilience of British companies impacted by the Coronavirus-spurred economic lockdown.
According to the survey, 4,000 financial services companies had low financial resilience by the end of October and are at a heightened risk of failure. However, the regulator is expecting that many of these companies will be able to bolster their resilience with the improvement of the overall economy.
“These are predominantly small and medium-sized firms, and approximately 30% have the potential to cause harm in failure,” FCA’s Executive Director of consumers and competition, Sheldon Mills, said in a statement.
Providing a Broad Picture of the Overall Market
The financial market regulator collected data from 23,000 solo-regulated firms for the survey. Its aim was to monitor the effects of the economic downturn on companies’ solvency. To get a better picture of what stressed the industry, the regulator also used existing regulatory reporting data and purchased data from third-party providers.
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The survey showed that three sectors: retail investments, retail lending, and wholesale financial markets showed an increase in liquidity between February and May/June period. On the contrary, insurance intermediaries and brokers, payments and emoney and investment management companies witnessed a decrease in liquidity.
Furthermore, the survey concluded that the payments and emoney industry have overall the lowest proportion of profitable firms. On the other hand, retail lending took the biggest dent in profitability during the period, followed by payments and emoney.
“Our role isn’t to prevent firms failing. But, where they do, we work to ensure this happens in an orderly way,” Mills added. “By getting early visibility of potential financial distress in firms we can intervene faster so that risks are managed and consumers are adequately protected.”