In response to the crisis, the FCA has been monitoring the effects of the economic downturn on firms’ solvency by rapidly increasing the data it collects on firms.

The surveys, which are one of the data sources used to monitor financial resilience, have been sent to 23,000 solo-regulated firms to understand the real-time effect the pandemic is having on the finances of the firms the FCA prudentially regulates.

The FCA has also been using existing regulatory reporting data, enhanced data purchased from a third-party provider and in-depth analysis of liquidity for a number of the most significant firms.

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

The survey results show that between February (pre-lockdown) and May/June (during the impact of the first lockdown), firms across the sectors experienced significant change in their total amount of liquidity. This was defined as cash, committed facilities and other high-quality liquid assets.

Three sectors saw an increase in liquidity between the two reporting periods: Retail Investments (8%), Retail Lending (8%) and Wholesale Financial Markets (83%), the latter seeing the greatest increase. The other three sectors saw a decrease in available liquidity: Insurance Intermediaries & Brokers (30%), Payments & E-Money (11%) and Investment Management (2%).

When asked whether they expected coronavirus to have a negative impact on their net income, 59% of respondents had said that they did. Of these, 72% expected the impact to be between 1% and 25%. 3% expected the impact to be 76%+ within the next three months of the survey being taken.

The Payments & E-money sector has the lowest proportion of profitable firms, followed by Wholesale Financial Markets, Investment Management, Insurance Intermediaries & Brokers, Retail Lending and Retail Investments.

For the firms that responded to this question the greatest decrease in profitable firms between February and May/June was seen in the Retail Lending sector (10 percentage points) followed by Payments & E-Money (9 percentage points). The other four sectors saw a small increase in profitable firms between February and May/June as follows: Insurance Intermediaries & Brokers (2 percentage points), Investment Management (2 percentage points), Wholesale Financial Markets (2 percentage points) and Retail Investments (1 percentage point).

Proportionately, Retail Lending had made most use of the available government support (49% of Retail Lending firms had furloughed staff and 36% had received a government backed loan), followed by Insurance Intermediaries & Brokers (44% had furloughed staff and 19% had received a loan), Retail Investments (37% had furloughed staff and 15% had received a loan), Payments & E-Money (36% had furloughed staff and 11% had received a loan), Wholesale Financial Markets (16% had furloughed staff and 11% had received a loan) and finally Investment Management (8% had furloughed staff and 3% had received a loan).