UK Watchdog Claims 4,000 Financial Firms Could Collapse Due To Covid-19 Hit

According to the estimates of the Financial Conduct Authority of the United Kingdom, the economic impact of the first wave of the novel coronavirus pandemic has put almost 4,000 financial companies of the country at the brink of and at “heightened risk” of collapsing.

The estimate was based on a survey of 23,000 financial companies of the country which was conducted to check on the resilience of the companies to the pandemic induced economic disruptions which had caused the worst recession in the country in more than 300 years.

According to Sheldon Mills, the FCA’s executive director of consumers and competition, the watchdog had identified about 4,000 financial services firms that had low financial resilience at end of October and hence were at an increased risk of collapse because of financial instability. Such companies are mostly those that are either small or medium sized ones and about 30 per cent of these companies have the potential to to cause harm ot the country’s economy if they collapse, Mills added.  

There has been severe criticism of the FCA with charges that the body had been “deficient” in handling the collapse of the London Capital & Finance investment fund in 2019. There is also heavy pressure on the watchdog for avoiding delays in mitigating harm to investors caused by other struggling companies.

A drop in the liquid assets available to companies such as cash that is absolutely critical for companies to tide over an economic downturn for insurance intermediaries and brokers, payments and electronic money, and investment management firms was found in the survey by the watchdog.

However the FCA has also urged people to be cautious while interpreting the outcome of the survey conducted by it. 

The watchdog said that this survey that brought out the above mentioned bad news was conducted prior to the implementation of the furlough scheme by the UK government as well as prior to the positive developments in the field of development of a vaccine for the pandemic and the announcement of new rules and restrictions which meant that the current situation of the financial firms can be different from what they were in at the time of when the survey was carried out.

Further, only those financial companies that are regulated by the FCA were included and examined through the survey by the watchdog and the survey did not include about the 1,500 largest firms in the financial sector which are under the regulation of the Bank of England’s Prudential Regulation Authority for the purpose of financial stability.

(Adapted from EocnomicTimes.com)



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