Inflation has hit 9.4%, triggering higher interest rates and the expectation of knock-on effects, from greater regulatory scrutiny of financial institutions over customer dealings to increased client defaults.
The message coming from the sector to ICAEW is that stress testing by accountants for a higher interest rate and inflation environment must now form part of essential client budget and resilience planning.
Hugh Fairclough, partner at RSM UK, said: “Accountants should advise clients on re-budgeting for any reduction in revenue or increases in supplier costs. Businesses should be consistently revisiting their budgets and pricing decisions, and assessing credit risks among their clients and customers.”
Finance providers may also need to consider whether their clients can extend repayment terms or agree repayment holidays during any pinch points in these forecasts, he said.
Financial institutions that do not adapt sympathetically to the higher inflation environment may fall foul of the regulator.
The Financial Conduct Authority recently told more than 3,500 lenders they need to provide customers in vulnerable circumstances with more support as the rising cost of living threatens to tip millions into financial difficulty.
Catherine Brittain, Partner at RSM UK said: “The regulator will expect firms to adapt their forbearance practices and debt help for customers who can’t afford repayments.”
She compared this to the onset of COVID-19 – customers might be offered repayment holidays or extensions to their credit agreements to help manage their cash flow.
You can read more about this from the Financial Services Faculty: How to manage in an inflationary environment
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