U.K. manager operating liquidity down only 2% at height of COVID-19

U.K. money managers saw a decrease in available liquidity during the first wave of the coronavirus pandemic starting in March, according to the U.K. Financial Conduct Authority.

In a survey of 23,000 firms, the U.K. financial services watchdog found that the liquidity available to investment management firms to trade and invest declined by 2% from February, when the pandemic first began, to May and June, when its impact was being fully felt. Liquidity available to insurance intermediaries and brokers fell 30%, while payments and online money platforms saw an 11% decline in the period.

Conversely, retail investments and retail lending sectors saw an 8% increase in available liquidity and wholesale financial markets saw an 83% increase, according to the FCA.

"We are in an unprecedented — and rapidly evolving — situation. This survey is one of the ways we are continuing to monitor the potential impact of (the) coronavirus on firms. A market downturn driven by the pandemic risks significant numbers of firms failing," Sheldon Mills, executive director of consumers and competition, said Thursday in a news release.

"At end of October we've identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve," Mr. Mills said. "These are predominantly small and medium-sized firms and approximately 30% have the potential to cause harm in failure."

The survey also found that investment management firms' profits fell by 2 percentage points over the period from February through May and June. Profits for insurance intermediaries, brokers and wholesale financial markets firms also fell by 2 percentage points each. That compared with the retail lending sector, where profits declined by 10 percentage points, and payments and online money platform firms' profits, which saw a 9 percentage point decline.

The FCA also found that some investment managers used government support to help deal with the impacts of the coronavirus pandemic, with 8% of the surveyed firms using it to furlough staff and 3% receiving a business loan.

That compared with 49% of retail lenders that used government support to furlough staff and 36% that received a loan. Some 44% of insurance intermediaries and brokers furloughed staff and 19% received a loan. In the rest of the sectors, 37% of retail investment firms furloughed staff and 15% of firms received a loan. In payments and online money platform sectors 36% furloughed staff and 11% received a loan, while 16% of wholesale financial markets firms furloughed staff and 11% received a loan.

The survey was conducted before the November extension of the government's furlough program until the spring of 2021, vaccine approvals and new restrictions were announced.