Wind-down Planning

On 7 January 2021, the Financial Conduct Authority (FCA) published the results of its coronavirus (Covid-19) financial resilience surveys. The surveys were sent to solo-regulated firms to inform the FCA of the impact of coronavirus on firms’ financial resilience.

The results between February 2020 (before the national lockdown) and May/June 2020 when the first lockdown initially took place, businesses experienced significant changes to their liquidity amounts.

It was found that the insurance intermediaries and brokers sectors had a 30% decrease in available liquidity.

The FCA want to see firms continue operating in this challenging period. Sheldon Mills, Executive Director of Consumers and Competition said:

We are in an unprecedented – and rapidly evolving – situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms. A market downturn driven by the pandemic risks a significant number of firms failing. Our role isn’t to prevent firms failing but where they do, we work to ensure this happens in an orderly way.

If a firm needs to exit the market, firms should consider how this can be done in an orderly way while taking steps to reduce the harm to consumers and the market.

Firms should maintain an up-to-date wind-down plan that takes consideration of the current market impact of the Covid-19 crisis.

So, what is the purpose and objective of the wind-down plan?

The purpose of this plan is to Identify the steps and resources that firms require to wind-down its business, especially in a situation where resources are limited. The plan should help to reduce the risk of negative effects on consumers and wider markets participants when a firm wind-down it is regulated business.

The plan evaluates the risks and impacts of a wind-down and considers how to mitigate them.

The aim of the plan is to understand the working capital and operational systems and controls that are required to implement an orderly wind-down of firms.

A well-planned wind-down strategy will allow a firm to cease its regulated activities and achieve cancellation of its permissions with minimal adverse impact on its clients, counterparties, or the wider markets. An example could include where the firm undertakes a strategic exit as well as unexpected crisis or insolvency that makes the firm unviable.

At end of October, the FCA identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve. These are predominantly small and medium sized firms and approximately 30% have the potential to cause harm if they were to fail.

If this is something your firm requires assistance with, please speak to your Regional Business Manager for further information on how RWA can assist with this.

About the author

Kirk joined RWA in 2015, having worked in the financial services sector for many years. He started out in both the general insurance and mortgage advice arms of HSBC, before becoming the Compliance Officer at Go Compare and Training & Competence Manager at Optimum Credit. 

At RWA, Kirk is Deputy Head of Compliance. He supports RWA clients by looking after their compliance, training and competence needs and keeping them up to date with regulatory changes. He promotes the achievement of fair customer outcomes and specialises in designing and implementing T&C schemes for firms of all sizes.

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