Small insurance firms in the U.K. are reeling from the pandemic
An FCA study found that thousands of financial services firms in the U.K. are at risk of failure due to the economic fallout from COVID-19.
Thousands of small financial services firms in the U.K. are facing failure as a result of the global COVID-19 pandemic, according to a new study from the Financial Conduct Authority (FCA). The British regulator surveyed 23,000 small-to-midsize solo-regulated firms to understand the real-time effects the pandemic is having on the businesses’ finances.
The FCA survey found that 4,000 financial services firms had low financial resilience and were at heightened risk of collapse in October 2020, with 30% having the potential to cause harm in failure, said Sheldon Mills, executive director of consumers and competition, in a press release.
“Our role isn’t to prevent firms failing,” Mills added. “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.”
Further survey results showed that financial firms experienced a significant change in their total amount of liquidity between February and May-June 2020 when the impact of the first lockdown hit. Amongst the sectors that saw a decrease in available liquidity were insurance intermediaries and brokers, with 30% reporting a reduction in cash, committed facilities, and other high-quality liquid assets. However, insurance intermediaries and brokers also reported a small increase (two percentage points) in profits for the same period.
Insurance firms also were amongst the businesses most likely to have used government support amidst the pandemic. About 19% of intermediaries and brokers said they received a loan, while 44% noted they furloughed staff.
The 1,500 largest firms in the U.K. financial sector, which are regulated by the Bank of England’s Prudential Regulation Authority, did not participate in the FCA study.
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