The FCA has recently provided guidance on how to conduct Wind Down Planning

The FCA recently completed a thematic review of wind-down processes across a number of business models. The review was aimed at reviewing firms on whether they held the appropriate liquidity, examining intragroup dependencies and wind-down triggers.

The review showed widespread weaknesses in wind-down planning and the need for firms to improve their wind-down processes as well as documentation.

Although the review focussed on the largest firms in several key industries. The observations and feedback from the review can be applied to all firms.

Risk Management and Wind Down Planning

You are required to consider the risks to your business during the FCA authorisation process. We note that the FCA identified during its review that most firms' risk management and wind-down planning lacked maturity (most had substantial gaps).  

You will need to embed wind-down planning into your risk management framework, recognising that disorderly wind-down is a key driver of harm. You can do this by appropriately identifying their wind-down triggers.

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FCA Observations

The FCA’s key observations from the review include:

1. A significant change in how you should assess your capital and liquidity needs. The FCA notes that firms tend to focus more on capital needs during a wind-down and not consider liquidity. The cash position of your firm may change during a winddown, and the FCA would expect you to consider whether your liquid holdings would be able to sufficiently fund a winddown.
2. The impact of intragroup dependencies needs to be assessed properly. You will need to consider the impact your membership of a group will have on wind-down planning. Most firms have assessed the interconnectivity of the group as positive, however, have not considered the stress that your company could be put under in the event of parental failure.
3. Testing the outcomes of wind‑down planning is the best way of showing your firm’s Board, as well as the FCA, that the plan and process is credible and operable.

The FCA has noted that firms can use their observations in their own wind-down planning exercise and that the exercise should be proportional to the scale, nature and complexity of the firm’s activities.

How MEMA can help

Contact our team today for more clarity on how to effectively tailor your wind-down plan to suit the regulatory requirements.