Retail lending experienced increased liquidity as the first wave of the coronavirus pandemic began hit the UK, the Financial Conduct Authority (FCA) has found.
A coronavirus financial resilience survey by the City regulator found that there was an eight per cent increase in the liquidity of retail lending and retail investments during February and May/June of last year. Wholesale financial markets saw an 83 per cent liquidity rise.
Meanwhile, insurance intermediaries and brokers, payments and emoney firms, and investment management saw liquidity levels drop over the same time period.
The payments and emoney sector had the lowest proportion of profitable firms last year, followed by wholesale financial markets, investment management, insurance intermediaries and brokers, retail lending and retail investments. The retail lending sector reported a 10 per cent decrease in profitable firms – the largest decrease of any financial services sector.
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The FCA warned that it has identified 4,000 financial services firms which have low financial resilience and are at heightened risk of failure.
“We are in an unprecedented – and rapidly evolving – situation,” said Sheldon Mills, executive director of consumers and competition at the FCA.
“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.
“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.”
Keith Richards, chief executive of the Personal Finance Society, said that it was “concerning” that the FCA has identified so many at-risk firms.
“I am surprised that there is no indication of a proactive plan to help mitigate possible failures during these unprecedented times,” Richards added.
“It is important to protect the interests of the consumers who may also be impacted as well as avoid further financial pressure being placed on the rest of the sector.”
The survey also found that retail lending firms have made most use of the available government support, with 49 per cent making use of the furlough scheme, and 36 per cent receiving a government-backed loan.