The Financial Conduct Authority (FCA) has warned that up to 4,000 financial firms in the UK are at “heightened risk of failure” due to the impact that the Covid-19 pandemic has had on the country’s economy.
The FCA conducted the survey as part of its monitoring of the effects of the situation in the UK, which saw the nation experience its worst economic downturn in 300 years. The survey of 23,000 firms identified that 30%, mainly small and medium sized firms, have the potential to cause harm in failure due to their low economic resilience.
If they manage to survive the pandemic, the FCA expressed hope that they expect the same companies to bolster their resilience when economic conditions improve.
Sheldon Mills, the FCA’s Executive Director of Consumers and Competition, tried to play down possible concerns in the report. “By getting early visibility of potential financial distress in firms we can intervene faster so that risks are managed and consumers are adequately protected,” he said. Although, Mills made clear that the FCA would be ready to support an orderly collapse of any firm that fails.
The FCA has, in the past, faced criticism for the manner in which it dealt with the collapse of the London Capital & Finance investment fund, potentially raising concern about how it would ensure minimal harm is caused to investors in other firms that fail.
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While the study presents a stark picture of the impact of Covid-19 in the UK, the survey only looked at firms that are regulated by the FCA and did not include the largest 1,500 firms in the nation’s financial sector. As such, the FCA cautioned that further government financial support, changes to coronavirus restrictions or a successful vaccine rollout could positively alter their assessment.
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