Following my colleague Kirk Ford’s article in last week’s Insight, I thought it would be useful if I put together an overview of some of the areas that brokers need to think about when considering their wind-down plans.
By way of a refresh, new FCA guidance requires all intermediaries have a comprehensive and bespoke wind-down plan in place. This means all sole traders, partnerships and limited companies need to act now.
The FCA’s guidance can be found here https://www.handbook.fca.org.uk/handbook/WDPG.pdf
Tip 1: The Quick Reference Guide within Appendices 1 to 12 of the above will help you consider the areas the FCA want you to think about.
Tip 2: Your firm’s wind-down plan should be unique. It must be well thought out and created accordingly. In a nutshell, another firm’s blueprint will not work for your firm!
So, what does a good plan look like?
The FCA states:
"An effective wind-down plan aims to enable a firm to cease its regulated activities and achieve cancellation of its permission with minimal adverse impact on its clients, counterparties or the wider markets. This includes scenarios where the firm undertakes a strategic exit as well as unexpected crisis or insolvency that makes the firm unviable”.
On this basis, a wind-down plan needs to cover worst case scenarios, while also considering what the firm needs to do should the owners decide to sell etc.
Who is best placed to create the wind-down plan?
Responsibility rests with the firm’s decision makers, so depending on the status of your firm, that could either be an individual or collectively, a firm’s partners or board of directors.
Tip 3: Please do not make the mistake of delegating this work and simply signing the plan off. The Senior Managers & Certification Regime (SM&CR) means individuals are accountable, particularly those who hold a Senior Manager function. It is therefore crucial the firm’s actual decision makers are involved in putting the wind-down plan together. Simply put, if something goes wrong, it will be the doors of those Senior Managers that the FCA will knock on…
Considerations when creating the plan:
- Have a complete understanding of the FCA ‘s specific requirements.
Tip 4: Please make sure you can articulate what the FCA want, just in case you are called upon to do so. Plus, all that learning means you can record CPD too!
- Consider all possible scenarios – even those which are perhaps difficult to think about/those ‘it won’t happen to me/us’ matters etc
- Retain an ongoing record of discussions/decisions while creating the plan which shows your rationale of how you got to the final result
- Allocate responsibility and oversight to the most appropriate individual with a deputy to step in as and when required, not forgetting to document those additional responsibilities on the relevant individuals SM&CR Statements of Responsibilities
- Assess and identify what actual resources will be needed in connection with a wind-down in terms of financial and non-financial and at what point in the plan they would need to arise. For example: redundancy payments, systems that need to remain in place including those required to return premiums to customers, IT infrastructure/resilience and cyber controls
- What other risks are there? Will there be any consumer/customer detriment? If so, how can the firm manage that?
- What about an adverse market impact?
- Think about reputational matters - not only of the firm but to individuals
(Tip 5: please do not forget the introduction of SM&CR regulatory referencing will ensure any failures around this, could catch up with an individual should they subsequently work elsewhere in a similar role)
The list goes on, but clearly there is a lot to think about and to do, which is where RWA can help.
Our team will help you plot out the various areas for consideration, provide the firm with an independent view to help steer it in the right regulatory direction.
Most importantly, we are here to support you, so please let us know how we can do that and quite simply, we will.
