British Watchdog FCA Says Pandemic Could Flatline 4,000 Financial Services Firms

U.K. market watchdog the Financial Conduct Authority (FCA) cautions that the results of its recent pandemic resiliency survey indicate some 4,000 companies doing business in the financial services sector lack resiliency and could collapse.

“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,” Executive Director of Consumers and Competition Sheldon Mills said in a Thursday (Jan. 7) press release. “A market downturn driven by the pandemic risks significant numbers of firms failing.” 

As the U.K. lockdowns for the third time since the COVID-19 pandemic began last year, Mills said that by the end of October, the FCA discovered that about 4,000 financial services firms had “low financial resilience” and were also at a “heightened risk of failure” but as the economy recovers, some companies could bounce back. Overall, about 30 percent of small and medium-sized businesses (SMBs) “have the potential to cause harm in failure.”

Mills also said that the FCA’s role “isn’t to prevent firms failing” but to step in sooner by being aware of “potential financial distress” companies could be experiencing. 

The survey polled 23,000 businesses between June and August, prior to the recently-extended furlough programs and the introduction of vaccinations. The survey doesn’t include 1,500 of the country’s biggest financial services firms, which are regulated by the Bank of England’s Prudential Regulation Authority.

Some 59 percent of survey respondents indicated that they expected the pandemic to lower their net income. Of those respondents, 72 percent said they were anticipating an impact of 1 to 25 percent. Some 3 percent expected an approximate 76 percent impact within the three months following the survey date.

Deepak Gupta, global head of payments as a service (PaaS) at Volante Technologies, said in a PYMNTS interview earlier last month that by tapping cloud services, banks can build business and technical resiliency while also serving the payment needs of corporates.

The World Bank said that the projected 4 percent economic growth in 2021 hinges on the success of vaccination distribution. Although the economy didn’t decline as much as originally forecast, emerging economies were hit harder than anticipated.