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YOUR COMPLIANCE MATTERS:    Coronavirus – Additional FCA Financial Resilience Survey

  • By MICHAEL HANSON
  • 14 Jan, 2021

YOUR COMPLIANCE MATTERS:   Coronavirus – Additional FCA Financial Resilience Survey                                                

Relevance:                   All firms.

Action required:         Awareness of additional survey requests from the FCA

 

You may already have been warned about (or received) the latest FCA Financial Resilience Survey. This is now hitting people’s inboxes, with a short turn round requirement! It covers similar ground to the surveys sent out previously.

 

We have received a number of queries, from firms who are concerned that the survey will cover information provided previously. To be clear, this will be an ongoing process now and you can expect regular requests for this information throughout 2021.

 

Some points to note:

 

  • Again, the FCA reckon this one will only take an hour to complete.
  • It is compulsory to respond
  • They may grant a short extension, but they would clearly prefer not to.

 

Please read the FAQs, before attempting to gather the information for the Survey, as not all questions will be relevant to you.

 

The reason for the ongoing work may become clearer when we review the FCA Coronavirus (Covid-19) Financial Resilience Survey data feedback, published 07/01/2021. This does suggest some vulnerability in the Intermediary sector with the expectation of a worsening economic environment.

 

See The coronavirus (Covid-19) financial resilience survey data | FCA for the full feedback.

 

The FCA state that ‘In response to the crisis, we are monitoring the effects of the economic downturn on firms’ solvency through 4 main sources:

  1. existing regulatory reported data
  2. enhanced data purchased from a third-party provider
  3. in-depth analysis of liquidity for a number of the most significant firms
  4. our financial resilience survey

Through these four sources we have rapidly increased our data on the firms we regulate. We have used this to provide more granular monitoring across the majority of the 49,000 firms we prudentially regulate to give an early warning about weaknesses in firms’ financial resilience.

From our analysis, a coronavirus-driven market downturn may cause significant numbers of firms to fail over the next 12 months. These are unprecedented times in terms of economic impact and levels of government support and the situation is rapidly evolving.

13,000 firms received the survey between 4 and 8 June and a further 10,000 firms received the survey between 5 and 10 August. Both surveys included the same questions and compared the firm’s position to that in February

The survey was repeated for all 23,000 firms after a 3-month interval from this initial survey. It is likely that it will be repeated regularly so that we can understand how the impact of the pandemic on the financial services sector is developing over time.

The position for Insurance Intermediaries

Insurance Intermediaries & Brokers made up 3,370 of the respondents. This covers insurance intermediaries, Lloyds and London Market intermediaries and price comparison websites.  

For this group, in response to the various questions raised, the results showed the following situation:

Question 1: What is the total amount of liquidity resources that you control or have unrestricted access to?

Insurance Intermediaries & Brokers overall showed a reduction of 30% from February,

Question 2: What are your estimated cash needs and expected cash inflows over the next 3 months?

The expected cash surplus for Insurance Intermediaries & Brokers was only 3%.

Question 3: Has your firm negotiated any extensions with creditors/delayed payments?

Insurance Intermediaries & Brokers 14%.

Question 4: Have you had or are you expecting a decrease in net income because of the impact of coronavirus?

Insurance Intermediaries & Brokers 60%.

Question 4a: If you answered ‘Yes’ to Question 4. What is the estimated percentage impact on net income?

Insurance Intermediaries & Brokers 4%,

Question 5: What is your net profit OR loss in the given period?

Insurance Intermediaries & Brokers showed a 2% drop in profitability during the period from February.

Question 6: What impact is coronavirus having on your business model?

Feedback from Insurance Intermediaries & Brokers showed that around 50% expected a negative impact.

Question 8: What was your income in the last financial year?

No feedback provided by the FCA.

Question 9: Have you furloughed permanent employees?

44% of Insurance Intermediaries & Brokers confirmed they had furloughed staff.

Question 10: Have you used the government support loan?

Insurance Intermediaries & Brokers 19% had received a loan.

Given the feedback received, the FCA is concerned about the ongoing financial resilience of firms, and as they state, this is the reason for ongoing monitoring.

Further help and assistance

As always, if you wish to discuss any aspect of the Survey, please get in touch although the FAQs look pretty comprehensive.

 

 

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