Context
The FCA has published a Thematic Review 22/1. The review, on wind-down planning across different business models, was conducted in light of the ongoing COVID-19 pandemic and the potential harms caused if a wind-down is not orderly. The FCA’s work focused on liquidity needs during wind-down, intra-group dependencies, and wind-down triggers.
Key points to note
- Bi-lateral discussions were held with a number of firms on the assessment of cashflow needs, modelling methodology, intra-group reliance, and risk management frameworks including stress testing. This shed light on various strengths and weaknesses in wind-down planning across a number of business models.
Some key observations within the review are:
- 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/governing body, as well as the FCA, that the plan and process is credible and operable.
Next actions
Whilst the exercise was conducted in response to the COVID-19 pandemic the observations within this review may be relevant to all firms regardless of the broader economic environment. Firms can choose to incorporate these observations into their own wind-down planning. Should they wish to apply these observations, they should do so in a way that is proportionate to the nature, scale, and complexity of its own activities. It is important that firms consider these observations, as the FCA may take these elements into consideration when performing a review of wind-down plans at a future date.