UK Markets closed

FCA boss: 'Significant' number of companies will fail due to COVID

·Senior City Correspondent, Yahoo Finance UK
·2-min read
Nikhil Rathi, CEO of the London Stock Exchange, arrives at Downing Street for a meeting in London on January 11, 2018. Britain's Prime Minister Theresa May mets with business leaders from the financial services sector at Downing Street.  / AFP PHOTO / AFP PHOTO AND Tolga Akmen / Tolga Akmen        (Photo credit should read TOLGA AKMEN/AFP via Getty Images)
Financial Conduct Authority chief executive Nikhil Rathi. Photo: Tolga Akmen/AFP via Getty Images

The chief executive of Britain’s top financial regulator has warned that a “significant” number of companies are likely to fail in the coming months as a result of the COVID-19 crisis.

In his first major speech since taking the top job at the start of October, Financial Conduct Authority (FCA) chief executive Nikhil Rathi said companies regulated by the watchdog were likely to fold in the coming months.

“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,” Rathi said in a speech at the City of London’s annual Mansion House gathering on Thursday evening.

The FCA supervises around 60,000 financial firms in the UK, covering everything from banks and insurers to investment advisors and payday lenders.

The number of companies going bust across the UK economy has so far been kept artificially low by extensive government support. The government has so far spent £200bn supporting jobs and companies in the UK.

READ MORE: UK second-home owners, stock investors, and pensioners could face £14bn tax hike

Insolvencies across England and Wales in September were 40% lower than a year ago, according to official government figures. However, experts believe companies will begin to fold in higher numbers once government support begins to be withdrawn from next year.

“The downturn is expected to come but it is expected to come later,” Lloyds Bank chief financial officer William Chalmers said on an earnings call with journalists last month.

Big banks like Lloyds have set aside billions of pound to cover an expected wave of defaults caused by the COVID-19 crisis.

While big banks are prepared, rising default rates and increasing unemployment could hit smaller firms which do not have the financial wherewithal to withstand challenging economic conditions.

“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,” Rathi said in his speech.

WATCH: How does the Bounce Back loan scheme work?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting