CFDs under the spotlight: wind down plans

Moore Stephens’s recent paper ‘CFDs under the spotlight’ shows that there is a strongly held view in the sector that the regulator thinks that CFDs are unsuitable for retail clients and the conclusion of the paper is that it is likely that there will be far fewer participants in the CFD market in London in two years’ time.  Indeed, there is a suggestion that the market could reduce by up to three quarters with firms expected to cease their CFD business or move to jurisdictions outside the reach of the FCA and ESMA.
 
Given pressure from regulators, the impact of MiFID II, Brexit and the intention of firms to close down or move their business, wind down planning is a critical activity and boards must ensure wind down plans are robust and practical.  We have seen very recent examples of the FCA writing to firms regarding their ICAAP noting that the firm has not provided a copy of their wind down plan in the ICAAP submitted for review and requesting that wind down planning is included in the next iteration of the ICAAP.     
 
If planning a closure, directors need to monitor timely and appropriate management information to ensure that action can be taken before profit and loss account pressure results in a position where liabilities cannot be paid in full in a wind down scenario, particularly as directors may face personal liability under the wrongful trading provisions of UK insolvency legislation if continued trading results in a worse outcome for creditors.
 
Whether planning a closure or redomiciling overseas, boards should ensure that planning is started as early as possible.  In practice, the process can take in excess of six to twelve months and a well-planned orderly wind down will maximise the return to investors.  It is also important to consider how issues such as long tail liabilities would be dealt with in an exit when renewing leases or contracts. 
 
In my view, if you are considering a closure or restructuring of your business in the short to medium term then you should be taking specialist advice on your wind down plan as soon as possible in order to manage risk and maximise the outcome for stakeholders.
 

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