Regulator warns FSCS could face strain as COVID-19 causes failures
City watchdog the Financial Conduct Authority (FCA) has warned that firms could fail as the market continues to adapt to the COVID-19 crisis putting a strain on the Financial Services Compensation Scheme (FSCS).
The FSCS is the UK’s statutory deposit insurance and investors compensation scheme and covers up to £85,000 worth of a customer’s deposits should an authorised financial services firm fail.
Whilst the chances of a major bank collapse are remote the regulator warned that smaller operations could fail creating issues for the scheme.
The FCA said: “We recognise that COVID-19 will have a significant impact on the viability of a number of firms. There may be further firm failures as a result, and further recourse to the FSCS.
“A key focus of our work in the coming weeks and months will be to anticipate where those failures may occur.
“The regulator said it was working with firms to ensure that any failures are managed in an “orderly fashion.
“We are putting additional resources into monitoring and analysing firms’ financial positions, so that we can intervene rapidly where necessary. We will continue to discuss how to reduce compensation costs.”
The FSCS is free to consumers and, since 2001, has helped more than 4.5 million people and paid out more than £26bn.