The FCA has made no secret of its commitment to reducing harm to consumers and markets from firm failure in its historical Business Planning exercises[1].. This has risen further up the FCA's agenda given the increased prospects of corporate insolvencies and recent market volatility in April 2025. This reflects continuity of messaging from the FCA in the multiple cross-sectoral publications directly or indirectly-related to wind-down planning over the past five years, over and above the FCA's Wind-down Planning Guide[2], including:
- Finalised Guidance 20/1 : Assessing adequate financial resources[3];
- Thematic Review 22/1: Observations on wind-down planning: liquidity, triggers & intragroup dependencies[4];
- IFPR implementation observations: quantifying threshold requirements and managing financial resources, February and November 2023[5];
- Payment Services and Electronic Money – Our Approach[6]; and
- Multi-firm review of consumer credit firms and non-bank mortgage lenders[7].
Expectations regarding wind-down planning have seemingly evolved. What began as a 'best practice' expectation in FG20/1 has now appeared to shift towards a hardening expectation that firms have robust arrangements in place around wind-down planning. Yet many firms take the view that wind-down planning is either not applicable to them or fail to get near to the planning and assessment standards required. The purpose of this article, written by both our FS Regulatory and Insolvency teams, is to share our latest insights of what we are seeing from the FCA and industry on a cross-sectoral basis in relation to wind-down planning, as well as insights on the benefits (and costs) of (not) planning.
Heightened FCA expectations around wind-down planning
As noted above, FCA expectations around both who has a wind-down plan, and the granularity of the plan's contents, have clearly increased in the past five years. This includes an expectation that this forms part of firm authorisation at the 'gateway' stage or other more routine BAU supervisory interactions / information requests in a number of instances. This arguably represents a shift away from the previous FCA position of firm-assessed 'proportionality' per Finalised Guidance 20/1. In support of this, we have observed instances where firms have received FCA requests for board-approved wind-down plans at short notice, seemingly unrelated to the broader thematic correspondence. In addition, we have also observed some firms form the view that wind-down planning only becomes relevant as the firm's going concern status is under threat, which is too late in the process and puts the firm, its senior managers and consumers at risk.
Secondly, the FCA's expectations of wind-down planning, while arguably well-articulated in its original wind-down planning guidance in 2016, have clearly evolved and increased as it has seen more plans. We summarise below the emerging themes we have observed from FCA feedback, both to firms individually and industry:
Granularity of planning
The FCA expects firms to undertake 'bottom-up' planning to sufficient detail and granularity to identify (e.g.) individual resourcing requirements, specificity of timelines, systems access / premise requirements, as well as any specific liabilities that may fall due. Firms should also make prudent allowances for onerous or burdensome contracts. This will contribute to the operational credibility of the plan, i.e., the firm's ability to put the plan into action, as well as the conclusions reached.
Firms also on occasion miss the 'so what?' of the exercise and fail to take the analysis further and conclude accordingly. Whilst one purpose of wind-down planning is to ensure that a firm knows the necessary steps to exit the market on an orderly basis, it should also result in an assessment of both non-financial and financial resources. Firms need to reach a clearly-quantified conclusion on the adequacy of both capital and liquid resources to demonstrate that they are able to wind-down without exhausting financial resources.
The final point to note on planning is the associated monitoring and trigger framework around the wind-down plan. Some firms place undue reliance on the static 110% of OFTR and LATR as early warning indicators and do not consider potential fast-moving (e.g.) liquidity events with the potential to rapidly deplete financial resources. Firms should have a clear trigger framework of the quantitative levels for various recovery responses and actual wind-down.
Wind-down scenarios
Firms are required – via formal governance – to determine a range of scenarios and circumstances relevant to their business model, which may potentially initiate the winding-down of the firm. The circumstances that might cause distress to an investment manager versus a consumer credit firm will be very different and so firms should not place reliance on generic, untailored scenarios. Through robust consideration of relevant scenarios, firms can plan for, evaluate the risk and impact of a firm-specific wind-down, and consider how to mitigate these. Firms should therefore ensure that they formally consider which scenarios would realistically cause the firm to wind-down (noting the clear linkage to reverse stress testing). Firms should also ensure that the starting cash position reflects this stress, as opposed to assuming the starting cash position is modelled on a BAU basis, otherwise this could result in the firm exhausting financial resources sooner than anticipated in a wind-down.
Wind-down testing
The FCA is closely scrutinising the 'operability' of firms' wind-down plans, i.e. firms' ability to execute. In some instances, the FCA has requested that firms perform testing of their wind-down plans, including scenario testing through simulations or 'war games'. For transparency, this has been in relation to 'best / worst' practice for investment firms, but firms should consider how they can demonstrate / validate the operational credibility of their wind-down plans and whether these can be made fully operational. Where any such dependencies / risks are identified, firms should take steps to ensure these are mitigated.
Intra-group considerations
Firms should give consideration to their group structure as part of their wind-down planning, where applicable. Intra-group linkages could take the form of revenue sharing agreements, use of shared service companies, and the provision of staff, services or systems in the delivery or oversight of regulated activities. As a result, firms within a group context should not perform wind-down planning in isolation and should give consideration to the above-mentioned considerations in wind-down. For groups with multiple regulated entities, consideration should also be given to the order in which multiple regulated firms would be wound-down, the requisite governance, and whether there are any intra-group dependencies that might hinder this wind-down cascade.
The cost of not planning properly?
Whilst wind-down planning can be a costly exercise, in terms of time, senior management bandwidth and professional costs, the consequences of failing to prepare an effective plan, and / or failing to regularly review or otherwise maintain a plan, can lead to FCA supervisory interventions (or increase the measures a firm is already facing). Requesting wind-down plans is a 'go-to' FCA request as part of any supervisory contact and poor / an absence of wind-down planning can increase the chances of more detrimental supervisory interventions such as:
- 166 / skilled person reviews;
- Request for voluntary requirements ("VREQs"); and / or
- Own initiative requirements ("OIREQs") being imposed by the FCA.
The cost to a firm of supervisory intervention is invariably greater than getting it right in the first place. Supervisory intervention often leads to:
- Significant costs with lawyers / consultants;
- Significant amounts of management time being diverted (often for many months);
- Potential reputational damage; and
- Loss of revenue (due to customers transferring out and/or the restrictions place on the firm including being unable to on-board new customers).
The costs to a firm of the above supervisory intervention measures can, when combined with inadequate wind-down planning, potentially be fatal and result in a firm becoming insolvent. This further highlights the need, considered against the backdrop of the FCA's increasingly swift approach to imposing regulatory action, for firms to take robust and proactive steps in relation to wind-down planning.
Often, wind-down plans only consider a solvent wind-down of a firm's business. In our experience, plans do not always proactively recognise the real financial risks that an unexpected crisis can have on a firm's solvency. Nor do they consider the pressures that directors face when having to balance the regulatory requirements (specifically mitigation of consumer harm) against their statutory duties as directors (i.e., where in an insolvency event, such duties shift to acting in the best interest of creditors).
We would therefore recommend that firms factor in insolvency scenario planning and considerations, including, among other things:
- Analysis of the available insolvency processes (administration, special administration or liquidation (whichever is applicable));
- Estimated costs of seeking advice and appointing insolvency office holders and legal advisors, in conjunction with the general wind-down planning costs; and
- Ongoing yearly analysis of the firm's creditor position.
When firms engage with the FCA regarding financial distress, the FCA often expects that a wind-down plan is presented considering the potential exit scenarios. Insolvency is sometimes unavoidable, and whilst there may be an initial cost of including insolvency planning in the wind-down plan, the cost saving at this juncture will far outweigh the initial costs and likely lead to quicker implementation of the insolvency aspect of the wind-down plan. Directors will also find that the creditor pressures of limiting the monies spent in placing the firm into an insolvency process are significantly reduced.
Should you require support or a follow-up conversation in relation to any of the themes discussed in this article regarding wind-down planning or insolvency, our team of experienced industry practitioners and former regulators are ready to provide support. We are (amongst other matters) currently working with a number of clients on various prudential matters as a result of FCA Multi-Firm reviews, including wind-down planning. Do please feel free to reach out to Harry Howe (harry.howe@dwf.law), Tom Fleming-Cooney (tom.fleming-cooney@dwf.law) or Foluke Onafowokan (foluke.onafowokan@dwf.law).
References
- Business Plan 2024/25 | FCA
- WDPG.pdf
- FG20/1: Our framework: assessing adequate financial resources
- TR22/1: Observations on wind-down planning: liquidity, triggers & intragroup dependencies
- IFPR implementation observations: quantifying threshold requirements and managing financial resources | FCA
- Payment Services and Electronic Money – Our Approach
- Multi-firm review of consumer credit firms and non-bank mortgage lenders | FCA
- IFPR implementation observations: quantifying threshold requirements and managing financial resources | FCA
- Payment Services and Electronic Money – Our Approach
- Multi-firm review of consumer credit firms and non-bank mortgage lenders | FCA
