The new FCA boss says the regulator expects a “significant number” of smaller regulated firms to fail in the coming months due to the coronavirus crisis.
In a speech addressed to the City Regulators at Mansion House this evening, FCA chief executive Nikhil Rathi said: “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.”
Referring to more than 4.4 million deferrals being granted across mortgages, credit cards and personal loans, he said it demonstrates the “far-reaching impact” of the pandemic.
He outlined financial strain is also being felt by the firms the FCA regulates.
And he praised those on the financial services frontline for keeping vital services available “in rapidly changing circumstances”.
He said: “In the corporate world, our markets and those who work in them stepped up to meet the need for recapitalisation. £14.7bn in equity was raised on UK markets between April and June this year, and the issuance of corporate debt by UK companies in June increased by 247 per cent compared to January.”
Rathi, now a month into his term at the regulator, explained how his FCA colleagues worked at a “remarkable speed” at the start of the pandemic to introduce measures to protect consumers and “keep markets functioning”.
In his speech, he also set out the challenges the FCA has on its radar for now, the next year and the longer term.
These included coronavirus and Brexit but he stressed that while dealing with immediate challenges it is important not to lose sight of “long running issues reshaping financial services”.
He highlighted areas such as gaps between generations in terms of wealth and opportunity and increasing pressure on the financially vulnerable as a couple of examples. Other areas included the growth of big data, machine learning and artificial intelligence as well as shifting consumer incentives towards high risk investment opportunities in a sustained period of low interest rates.
The FCA chief executive said that while the regulator has responded to the Covid crisis, it has also kept its focus on “readiness” for the end of the of the transition period after the UK’s departure from the EU.
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.”
