Thousands Of Finance Firms Under Virus Stress, FCA Warns

By Najiyya Budaly
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Law360, London (January 7, 2021, 3:22 PM GMT) -- The Financial Conduct Authority warned on Thursday that 4,000 finance companies are at "heightened risk" of failing and potentially harming the market as a result of the economic fallout from the COVID-19 pandemic.

The City watchdog said that the businesses which are likely to fail are mostly small and midsized enterprises. Some 30%, or 1,200, of the 4,000 that could collapse have the potential to cause harm to consumers and the wider financial system, the FCA said.

The regulator said its figures, which date from the end of October, came from a survey of 23,000 regulated finance businesses. The watchdog is reviewing the potential harm to the U.K. sector caused by the pandemic.

"We are in an unprecedented​ — and rapidly evolving — situation," Sheldon Mills, an executive director at the FCA, said. "A market downturn driven by the pandemic risks significant numbers of firms failing."

The watchdog said that its role is not to prevent companies from failing. It is looking instead to ensure that they can be wound down 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," Mills said.

The results of the survey show that insurance brokers, payments companies and investment managers saw a drop in available liquidity during the first national lockdown, which started in March. More than half, 59%, of finance firms said they expected the pandemic to hit their profits, the FCA said.

But the watchdog added that the results of its survey should be viewed with caution as it was conducted before the government's furlough scheme was extended and the coronavirus vaccine was approved in the U.K.

The survey also did not take into account the U.K.'s largest financial companies, which the FCA jointly regulates with the Prudential Regulation Authority.

--Editing by Ed Harris.

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