Significant reliance on government-backed loan schemes may indicate weak financial resilience, according to the Financial Conduct Authority.
The regulator published the results of its financial resilience regulatory return survey today (April 4) which looked into whether firms held enough resources to meet ongoing obligations.
It found 17.9 per cent of surveyed firms had received government support with consumer finance having the highest proportion at nearly 27 per cent.
Insurance had the second highest at 21 per cent followed by consumer investments at 17.8 per cent.
The consumer investments category, which had 4,806 respondents, included advisers, intermediaries, platforms, SIPP operators and wealth management firms.
The FCA said significant reliance on government-backed loan schemes highlighted potential challenges in a firm’s ability to meet short-term liabilities using its own cash flows, therefore indicating weak financial resilience.
The survey grouped firms into eight categories which included, buy-side, consumer finance, consumer investments, infrastructure and exchanges, insurance (intermediaries and brokers), payments and digital assets, non-bank lenders and administrators as well as sell-side.
Further data revealed consumer investments had the third highest proportion of firms anticipating a reduction in profits at 17.19 per cent.
In addition, 66 per cent of firms in the category anticipated a 1- 25 per cent decrease in profits or increase in losses.
Only 5 per cent of firms in the category expected a significant drop in profits exceeding 75 per cent.
The survey also found under a quarter of respondents considered the macroeconomic environment to have negatively impacted their business model.
Within the consumer investments category, 24 per cent of firms said it had a negative impact.
The FCA also asked firms for their most recent revenue, with consumer investments reporting the second lowest median revenue, at £380,000 with consumer finance the lowest at £232,286.
In January 2024, the FCA replaced its financial resilience survey with a new financial resilience regulatory return called FIN073.
The regulator said the new survey aimed to improve the quality and consistency of financial data from firms, focusing on collecting only the most critical information for its supervisory assessments.
It also said it will be able to continue to collect financial resilience information on liquidity, income, and net asset position, whilst reducing firm burden.
alina.khan@ft.com
