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FCA expects significant small firm failures

The Financial Conduct Authority expects a significant number of smaller regulated firms to fail over the next few months.

In a speech to the City Regulators at Mansion house on Thursday evening, the FCA’s chief executive Nikhil Rathi said he expects to see some firms fail as a direct result of the Coronavirus pandemic.

He said: “The financial impact of the pandemic is being felt by the firms we regulate, too. 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.”

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He expects Brexit to have an impact on investment costs and returns for both savers and pensioners.

He said: “We remain committed to upholding high international standards and to maintaining open markets. 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.”

Mr Rathi also briefly acknowledged the impact that the high cost of regulation is having on financial services firms and said that investments in technology should result in lower costs.

He said: “With around 60,000 regulated entities to supervise, we need to make further investments in a more digital and data-enabled approach. This should allow us to intervene sooner to reduce harm to consumers and markets. And smarter collection and use of data, backing faster intervention, should result in a lower total cost of regulation for well run financial services firms.”

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