Britain’s financial watchdog has warned that hundreds of small and medium-sized City firms are at risk of collapse due to the economic pressures of the Covid-19 crisis.
The Financial Conduct Authority also said it was concerned about the impact of home working during the pandemic, and that companies may struggle to supervise workers in highly-regulated jobs, like trading, over the long-term.
The regulator also took a swipe at internet giants like Google, accusing them of earning money from investment scam adverts posted on their platforms. Speaking at the FCA’s annual general meeting on Thursday, the watchdog’s chairman, Charles Randell, said that Google and social media companies were were also profiting from the regulator’s own counter advert campaigns meant to alert consumers to the scams.
Turning to Covid, one of the regulator’s executive directors, Megan Butler, said work was underway to get a better sense of which financial firms might go bust over the coming months, as coronavirus cases continue to rise, putting the economy under further strain.
“The financial pressures will also hit parts of the finance industry. Among the small and medium-sized firms, which we regulate for prudential standards, we expect to see a number of firm failures,” she explained.
Over 14,000 companies have been surveyed by the FCA so far, and the regulator is now in the process of gathering data from a further 10,000 companies to find out how close they are to failing, and how harmful their collapse might be to consumers.
Butler said hundreds of firms were at risk of collapse. “[The] bottomline is firms fail. They always fail, they always have failed. Our concern is that they can fail in an orderly fashion as possible,” she said.
“What we’re asking firms to do, and to assess themselves against, is a plausible but severe scenario, and that is leading to hundreds of firms being considered in that first wave. We expect that number to get larger.”
The FCA executive, who is the director in charge of the regulator’s investment and wholesale division, said she was also concerned about how City firms will manage to monitor staff in highly-regulated roles now that the UK government has urged employees to continue working from home for longer.
It comes as major banks like Goldman Sachs, HSBC and, Barclays announced they were postponing plans to bring staff back to offices in England in light of the new government guidelines.
Butler said that while most firms had managed to cope, some problems had already been identified in “particular sectors” and with “individual firms.”
She added it would be much harder to establish a culture of trust if people are not meeting face to face, or were being hired during the pandemic via a remote process.
“How do you train and develop your people? How do you assess their performance and make sure they’re behaving in the way that you would want them to do? These are all difficult questions that get harder over time, and it doesn’t look like anyone is going to be back in the office anytime soon,” she said.
The FCA also took aim at tech firms such Facebook and Google on Thursday. Randell said he was frustrated that platforms were allowing fraudsters to disseminate “scam marketing” cheaply and without confirming their identities, despite the regulator’s pleas for preventative vetting.
“You can imagine how deeply frustrating I find it, that Google is not only earning money from these scam advertisements, but it’s also earning money from us, because we then have to try and post our own advertisements up on Google warning consumers about the consequences of following up these leads.”
“So it’s an area that needs urgent change – changed by Google, and if necessary, change through legislation,” he added.
Google said fraud and ad scam protection was a key priority for the company and that it had updated policies that force advertisers to go through a business verification programme.
“This programme allows us to gain more information about the advertisers’ identity, business model and relationships with third parties to ensure users can trust the ads they’re seeing,” Google said.
“This policy update follows months of engagement with and input from the FCA to ensure we’re effectively addressing the bad actors responsible for predatory financial ads.”