A regulatory body in the United Kingdom that oversees nearly 60,000 businesses has revealed the extent of the coronavirus pandemic’s impact on the country’s financial firms.
In a report on the findings of its coronavirus financial resilience surveys that were separately conducted in June and August last year, the Financial Conduct Authority (FCA) said that the coronavirus placed around 4,000 financial firms in the country at increased risk of collapse.
“These are predominantly small and medium-sized firms and approximately 30% have the potential to cause harm in failure,” said FCA’s Executive Director of Consumers and Competition Sheldon Mills.
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The surveys, which gathered data from 23,000 solo-regulated firms, were conducted to assess the pandemic’s effect on firms’ financial resilience that the FCA regulates.
Of the respondents, 59% said that they expected the pandemic to impact their net income negatively. The results also showed that three sectors saw a decrease in available liquidity, namely Insurance Intermediaries & Brokers, Payments & E-Money, and Investment Management.
Mills said that a pandemic-induced market downturn could place significant numbers of firms at risk of failure. Still, he expressed optimism that many of the firms with low financial resilience and increased risk of collapse will improve their resilience once economic conditions improve.
“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,” – Sheldon Mills said.
Global toll of the pandemic
The coronavirus has wreaked financial havoc that affected advanced economies like the UK and the US amid lockdowns to prevent the virus’s spread.
In the latest Global Economic Prospects report, the World Bank Group (WBG) said that while the world’s economy will likely have a 4 percent expansion in 2021, the pandemic is anticipated to leave long-lasting adverse effects.
The WBG warned that the slowdown in global growth would likely extend through the next decade amid underemployment, underinvestment, and declines in the labor force.
“While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges—in public health, debt management, budget policies, central banking, and structural reforms—as they try to ensure that this still-fragile global recovery gains traction and sets a foundation for robust growth,” – expressed World Bank Group President David Malpass.
Malpass said that a major push to improve business environments, boost labor and product market flexibility, and bolster transparency and governance is crucial to overcome the pandemic’s economic impacts.
