There are 4,000 financial services firms currently at risk of failure, according to research carried out by the FCA.

A financial resilience survey by the FCA, sent out to 23,000 firms it prudentially regulates, indicated that firms across several sectors have experienced significant change in their total amount of liquidity, as a result of the coronavirus pandemic. This was defined as cash, committed facilities and other high-quality liquid assets.

The regulator said it has been monitoring the effects of the economic downturn on firms’ solvency by rapidly increasing the data it collects on firms.

Between the pre-lockdown period in February, and May to June when the impact of the first national lockdown was felt, three sectors saw an increase in liquidity between the reporting periods – retail investments (8%), retail lending (8%) and wholesale financial markets (83%), the latter seeing the greatest increase.

The other three sectors surveyed saw a decrease in available liquidity – with insurance intermediaries and brokers (30%), payments and e-money (11%) and investment management (2%) displaying falls.

FCA executive director of consumers and competition, Sheldon Mills, commented: “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.”

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