The Financial Conduct Authority (FCA) expects to see a “significant” number of firms to collapse over the next few months, due to the economic pressures of the coronavirus pandemic.
In an address to the City regulators at Mansion House, London earlier today (12 November), the FCA’s chief executive Nikhil Rathi (pictured) warned that smaller financial services firms will be at particular risk.
“The financial impact of the pandemic is being felt by the firms we regulate, too,” said Rathi.
“Ultimately, we can’t intervene to stop firms from failing in the face of economic distress and sadly we do expect a significant number of regulated firms, particularly smaller firms, to fail in the months ahead, but it is our job to ensure that where this happens, the resulting harm and loss to their customers and the wider financial system is kept to a minimum.”
Rathi also warned that Brexit could create further disruption to the financial services industry, by making it harder for financial firms to raise money from overseas institutions, and trade with their European counterparts.
“We remain committed to upholding high international standards and to maintaining open markets,” he said.
“Fragmentation will affect liquidity, reduce the ability to net transactions, make risk management more difficult and feed through into a higher cost of capital. These additional costs and lower returns will ultimately hit savers and pensioners, whether they are in the UK or in the EU. We are doing what we can to avoid this.”
The regulator has been working to ensure that UK-based investors and asset managers continue to have the freedom to find the best possible trading terms.
In his speech, Rathi confirmed that the FCA “does not wish to restrict how and where companies can raise capital or restrict trading of their securities in any currency”.
Rathi added that the FCA is also monitoring ongoing concerns such as increasing pressure on the financially vulnerable, stretched or distressed and shifting consumer incentives towards high risk investment opportunities at a time when consumers are bearing more of the responsibility for their own investment decisions.
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