A Large Number Of Businesses Are At Their Breaking Point: FCA

  • September 25, 2020 04:31 AM BST
  • Team Kalkine
A Large Number Of Businesses Are At Their Breaking Point: FCA

Summary

  • The regulatory authority indicated that thousands of city firms were on the verge of a collapse due to the deteriorating state of the British economy, especially post lockdown.
  • The authority stated the downsides of working from home arrangement, where employee supervision has suffered, lowering productivity levels.
  • In its AGM, the FCA was also critical of Google and other social media websites for not doing much to stop the spreading of investment scam advertisements, which has shot up significantly in the recent months.

In its recently concluded Annual General Meeting (AGM) the Financial Conducts Authority (FCA) has laid out a picture of the British economy and how things are shaping up post the opening of the lockdown. Held on 24 September 2020, the AGM saw Chairman of the FCA Charles Randell and executive director Megan Butler addressing a variety of issues including increasing instances of investment scams in the country.

The regulator has been highly critical of Google and several other social media platforms for allowing their portals to be used by fraudsters to post investment-scam advertisements. It is to be noted here that crash in the capital markets and falling return from fixed income instruments because of record low interest rates have shrunk the available investment avenues. This has been the primary reason why people have been lured by fraudulent advertisements of investment opportunities promising higher rates of returns. The FCA has published several cautionary circulars recently advising the general public to be beware of such scams.

Businesses under distress

There has been an asymmetric recovery of different sectors in the country post the opening of the lockdown. This has increased the sectoral imbalance of growth and some sectors are negatively impacted much more than others. This phenomenon is expected to lay heavily on hundreds of small and medium sized city firms who are now on the verge of collapse.

The FCA has come to this conclusion after investigating the financial books of more than 14000 firms till now, it elaborated. It was also collecting data from thousands of more firms. This gloomy scenario is not just detrimental to the businesses alone, the consumers and jobs will also get adversely affected, the FCA informed.

The threat of an increase in the unemployment rates from the worst-affected sectors post the withdrawal of the furloughing scheme has badly hit the job market and could lead to a further deterioration in the economic conditions of the country. The delay in the availability of the coronavirus vaccine has also made the public anxious about the sustainability of the economic recovery process. The timely availability of a vaccine and progressive inoculations of people can provide a considerable employment support as companies would be willing to hire people with easing social distancing measures.

Payrolled employees, UK, July 2014 to August 2020

(Source: Office of National Statistics, UK)

The number of payrolled employees saw a sharp fall from 29 million in March 2020 to 28.3 million during August 2020. This has been the steepest fall ever in the British history.

The coming of a second wave of the pandemic is currently the biggest impediment in the economic revival. Despite working hard for nearly five months now, the NHS (National Health Service) has not been able to cap this healthcare threat. As the winter months approach, the number of infections has started to rise.

The downside of WFH

Work-From-Home (WFH) has become the lifeline of many organisations since the outbreak of the pandemic. They are extending this facility to a significant proportion their staff to keep their organisations going. While there are many advantages that WFH extends to businesses, health safety and convenience remain the primary ones.

At the same time, there are various downsides to this home working arrangement. For instance, it has led to a lower supervision of work that has reduced productivity and increased the data security risks. The attacks by hackers and phishing criminals have also increased significantly since the imposition of the lockdown. This is leading to a lack of trust between employers and employees, which is detrimental to all industries, especially the banking and financial services. This deteriorating trust might impact the quality of service and cause small and mid-sized firms to go bankrupt, as an extreme case.

Increasing investment frauds

The Investment Association, the industry body of fund managers in the United Kingdom, had recently reported that private investors have lost millions to fraudsters during the past few months.

While FCA as well as the Investment Association regularly advise investors to be vigilant before entrusting their hard-earned money to anyone, however, the increasingly sophisticated methods being employed by these fraudsters make it very difficult to distinguish them from real businesses.

Many of these fraudsters use genuine employee e-mail addresses and contact unsuspecting customers to cheat, much to the dismay of genuine businesses, who also indirectly fall prey. The Investment Association had stated that it had reported nearly 300 such cases to the FCA and law enforcement authorities in the UK during the year 2020, with most of them occurring after the month of March.

To sum up, during its annual general meeting, the FCA highlighted few risks being faced by the British economy. It highlighted that hundreds of small and medium sized businesses in the UK could perish as a result of the pandemic. With higher financial pressure on the British banks in times to come, they might not be able to support the struggling SMEs, which ultimately may result in their failure. The FCA also blamed the big internet groups of not been able to stop fraudsters form making money though investment scams ads on social media platforms.

 

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