Around 4,000 financial services firms were at a “heightened” risk of collapse due to the coronavirus pandemic even before the second wave struck, the City watchdog has warned.

The Financial Conduct Authority (FCA) said a survey of 23,000 firms found that, at the end of October, 4,000 had low financial resilience and faced a greater risk of failure.

Around 30% of these firms, which were mainly small businesses, had the potential to cause harm if they went bust, according to the FCA.

But the FCA urged caution over the data, stressing that the survey was carried out before the recent furlough scheme extension, vaccine rollout and the latest English lockdown and restrictions.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “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.

“Our role isn’t to prevent firms failing but, where they do, we work to ensure this happens in an orderly way.

“By getting early visibility of potential financial distress in firms, we can intervene faster so that risks are managed and consumers are adequately protected.”

The poll was undertaken to check on the resilience of financial services firms to the coronavirus crisis.

The FCA’s study showed that insurance intermediaries and brokers, payments and electronic money, and investment management firms suffered a drop in so-called liquid assets, such as cash, which is key to their resilience amid a crisis.

It also revealed that more than half – 59% – saw a hit to their net income from the first wave of the pandemic and lockdown, of which 72% expected an impact of up to a quarter.

Firms were polled in two tranches, in June and August, and the watchdog said a recent repeat has seen it gather 19,000 responses, with further surveys set to be carried out.

It did not cover the 1,500 largest firms across the sector, which are regulated by the Bank of England’s Prudential Regulation Authority (PRA).

The results of the survey come after an independent report recently condemned the FCA for failing to properly regulate and supervise mini-bond operation London Capital & Finance (LCF) before it went into administration leaving 11,600 investors facing losses of £237 million.

Dame Elizabeth Gloster said in her report that the FCA must focus on improving its internal authorisation and supervision processes, heaping pressure on the regulator to keep a closer eye on struggling firms.