On 11 April 2022, the FCA published Thematic Review 22/1 ‘Observations on wind-down planning: liquidity, triggers & intragroup dependencies’ (TR22/1).
The FCA’s observations in TR22/1 may be relevant to all firms, regardless of the broader economic environment. It is based on a piece of thematic work the FCA recently completed which focused on wind-down planning across a number of different business models, in light of the COVID-19 pandemic. In particular, the FCA focussed on liquidity needs during wind-down and examined firms’ intra-group dependencies and wind-down triggers.
The FCA reports in TR22/1 that where they existed, most wind-down plans, processes and risk management frameworks remained at an early stage of maturity. Many had substantial gaps and did not reflect the minimum expectations highlighted in the FCA Wind-Down Planning Guidance and Finalised Guidance 20/1 ‘Our framework: assessing adequate financial resources’.
In particular, the FCA observed that:
- Significant further work is needed to ensure that the wind-down planning of firms is credible and operable. This particularly relates to liquidity and cashflow modelling, intra-group dependency and wind-down trigger calibration.
- Firms should consider the impact liquidity needs in wind-down have on their assessment of resource adequacy, their risk appetite and point of non-viability.
- Testing the outcomes of wind-down planning is the best way of showing the firm’s board/governing body, as well as the FCA that the plan and process is credible and operable.
Firms are encouraged to review the FCA’s observations set out in TR22/1 and considering incorporating these into their own wind-down planning processes and documents, in a way that is proportionate to the nature, scale and complexity of the firm’s activities.