The FCA’s proposed guidance on wind down planning

In May 2016, the FCA consulted on their proposal to issue a guidance document entitled The FCA’s approach to wind down planning. The Consultation is aimed at FCA solo-regulated firms and is intended to offer an approach to wind down planning.
While it is not a prescribed approach, and it does not by itself impose any obligations on firms to create wind down plans, the FCA is currently asking firms whether they have a wind down plan in place when they are seeking authorisation. We are finding that more and more of our clients are now asking for advice and support to prepare their wind down plans.
What is wind down planning?
The FCA describes wind down planning as the process by which a firm:
  • identifies the steps and resources needed to wind down its business, especially in a resource-stressed situation; and
  • evaluates the potential risks and impact of a wind down and considers how to mitigate them.
While these concepts are fairly simple in nature, the draft approach document (wind down planning guide or WDPG) covers a wide range of issues related to winding down which are not day to day activities for the compliance function or the board.
What should the wind down plan include?
The WDPG suggests that an effective wind down plan should include the following:
  • the scenarios that could lead to a firm no longer being viable;
  • information regarding governance processes, management information and other control processes to support timely wind down decision making;
  • a plan to steer the firm to wind downs its business in an orderly manner after a decision to exit has been made;
  • an assessment of the resources, both financial and nonfinancial, that are needed to support an orderly wind down; and
  • identified and mitigated any material risk or obstacles to orderly wind down.
The wind down plan should be reviewed by the firm’s governing body, but is intended to be a living document that a nominated person will ensure remains adequate, current and relevant to the firm’s operations.
Key considerations
In our experience, the following matters are likely to be critical when undertaking wind down planning:
  1. Developing an understanding of the events that could make the firm no longer viable such as significant financial losses, loss of key clients, loss of critical infrastructure or withdrawal of support by the group or investors.
  2. Ensuring timely and appropriate management information is available to ensure the governing body can take prompt action in the event of the stress or distress of the firm which will mitigate the impact on clients, employees, creditors and other stakeholders.
  3. Taking the appropriate advice to ensure the governing body the plan considers how the governing body will assess the ongoing solvency of the firm and their duties in a stressed or distressed situation.
  4. Ensuring the impact of the wind down on clients is mitigated through a robust CASS audit and Resolution Pack.
  5. Developing an accurate picture of the firm’s liabilities, including contingent liabilities, and an understanding of how these will crystallise in a wind down situation.
  6. Understanding the key staff that will be required to implement any wind down plan and how to ensure essential resources, including how those key staff can be retained to complete the wind down.
  7. Preparing a communications plan to ensure that the wind down is communicated effectively in a way that best mitigates the impact on stakeholders.
  8. Considering how best value can be achieved for intellectual property or other assets.

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