FCA survey: Covid-19 first wave brought 30% liquidity drop for insurance intermediaries

The FCA has published the findings of a survey sent to 23,000 solo-regulated firms across a range of financial services sectors to asses the effects of Covid-19 on their financial resilience.

The financial resilience survey was one of a range of ways in which the FCA has been gathering data to keep track of the pandemic’s impact on the firms it regulates. Other sources have included existing regulatory reporting data, enhanced data purchased from third parties, and in-depth liquidity analysis on key firms.

FCA executive director of consumers and competition Sheldon Mills notes that ‘A market downturn driven by the pandemic risks significant numbers of firms failing.’ The FCA says it has identified 4,000 financial services firms – mostly SMEs – with low financial resilience who are at heightened risk of failure. 

Although around 30% of these at-risk firms have the potential to cause harm in failure, Mills stresses that ‘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,’ he says, ‘we can intervene faster, so that risks are managed and consumers are adequately protected.’

The survey found that, between February before the initial lockdown and May/June when the impact of the lockdown was at its height, firms saw a significant change in their liquidity (defined as cash, committed facilities and other high-quality liquid assets). 

Insurance intermediaries and brokers saw a 30% decrease in available liquidity, compared with an 11% drop for payments and e-money and a 2% fall for investment management. Meanwhile wholesale financial markets saw an 83% increase in liquidity, with retail investments and retail lending each seeing a more modest 8% increase.

One in six firms surveyed said they expected Covid-19 to have some kind of negative impact on their income. Insurance intermediaries and brokers were among the more optimistic sectors in terms of their expectations for future profitability. The proportion of profitable firms in the sector increased by 2% between February and May/June. Meanwhile 44% of insurance intermediaries and brokers said they had furloughed staff, and 19% had received a loan. 

You can read the full sector-by-sector report here.

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