30Nov

FCA admits Covid is likely to result in firms failing, but says that can’t mean lighter touch regulation

On September 24, at the regulator’s annual public meeting, Financial Conduct Authority interim chief executive Christopher Woolard said bluntly:

“We expect to see a number of business failures”.

On November 12, his permanent successor as CEO, Nikhil Rathi, gave his first speech in the role, and said:

“The financial impact of the pandemic is being felt by the firms we regulate … 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.”

The effects of Covid-19 on the business world have been cataclysmic, and job losses and firm failures in financial services are inevitable. The announcement of a second national lockdown in England on October 31 was accompanied by an FCA announcement requiring mortgage and credit providers to grant additional payment deferrals to borrowers. What was absent from any of the announcements about this was any consideration of whether the lenders would be able to afford to grant these deferrals, but nonetheless the FCA effectively gives them no choice but to comply and to grant a six-month holiday to any borrower who is struggling financially as a result of Covid.

Megan Butler, director of supervision – investment, wholesale and specialist – at the FCA, told Credit Strategy magazine that while her organisation was conducting surveys to assess the impact of the pandemic on authorised firms, estimating the precise number of firms who were likely to fail was very difficult.

Where a regulated firm goes out of business, the FCA’s priority is to protect the interests of the firm’s customers and investors.

Even before the pandemic, there had been a number of high-profile firm failures in consumer credit. Several payday lenders have exited the market, and some of the guarantor lenders have suggested that they are in serious difficulty.

However, firms certainly shouldn’t expect their regulatory burden to be eased in the near future, so their costs of regulation won’t be reducing in line with the way Covid-19 might have punched a hole in their revenue streams.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article