FCA publishes findings following thematic review on wind-down planning

Written by Carly Phillips-Jones

On 11 April 2022, the FCA published a report following a thematic review on wind-down planning across a number of different business models, in light of the on-going COVID-19 pandemic. The observations and feedback provided may be relevant to all FCA regulated firms, regardless of the broader economic environment.

The review focused on liquidity needs during wind‑down and examined firms' intra‑group dependencies and wind‑down triggers. It sought to ensure that the largest firms in several key sectors held sufficient liquid resources to fund a wind‑down if required, particularly given the turbulent economic environment.

The FCA’s review highlighted that, where they existed, most wind‑down plans, processes and risk management frameworks remained at an early stage of maturity (and many had substantial gaps). The FCA reiterated its minimum expectations outlined in both the Wind‑Down Planning Guidance and the Framework for assessing adequate financial resources.

The FCA’s key observations following the review were that:

• Significant further work is needed to ensure that the wind‑down planning of firms is credible and operable. This particularly relates to liquidity and cashflow modelling, intra‑group dependency and wind‑down trigger calibration.
• Firms should consider the impact liquidity needs in wind‑down have on their assessment of resource adequacy, their risk appetite and point of non‑viability.
• Testing the outcomes of wind‑down planning is the best way of showing the firm’s Board, as well as the FCA, that the plan and process is credible and operable.

The FCA noted that firms can choose to incorporate these observations into their own wind‑down planning, and that they should do so in a way that is proportionate to the nature, scale, and complexity of their own activities. The FCA added that it may take these elements into consideration when performing a review of wind‑down plans at a future date.