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25 May 2016

Guidance on Orderly Winding Down for Regulated Firms

The FCA has this week issued proposed guidance to firms in relation to winding-down.

The regulator’s new consultation paper (GC16/05: Proposed guidance on wind-down planning) has been released so that the FCA can firm their plans on issuing an Approach Document for firms later this year.

The Approach Document will provide guidance to firms that are wishing to undertake an orderly wind down of their business which may happen during stressed conditions.

This guidance, the regulator informs, is “likely to be of most relevance to solo-regulated firms”. Thus those firms purely regulated by the FCA should take particular note of the consultation’s progress.

Following requests from both professional advisors and regulated firms the FCA are seeking to provide further clarification on what ‘wind-down planning’ should cover and thus propose a ‘non-binding Approach Document’ with the aim of benefiting both firms and their professional advisors.  As the FCA informs:

“The approach document itself does not impose an obligation on firms to create wind - down plans, but merely suggests a logical approach for firms that have decided to engage in such planning.”

“We accept that there are many different approaches to wind-down planning, so we encourage firms to take this approach document into consideration as a starting point and tailor a model that best suits their circumstances”

FCA GC16/05, May 2016

Wind-down Key Issues:

When a firm plans for winding-down, they should consider how the firm’s regulated business may be closed down in an orderly fashion, including during stressed conditions.

For a wind-down plan to be effective it should assist a failing firm to cease its regulated activities and the cancellation of its permission with the least impact upon the firm’s clients, counterparties and the wider markets.

Thus a wind-down plan will involve the firm:

 Identifying the measures and resources it needs in order to wind-down its business

 Identify if the steps for wind-down will be affected in a resource-stressed situation and what should be done in this scenario

 Evaluate the risks and impacts of the wind-down actions that need to be performs; and

 Consider how to mitigate these issues

The regulator is taking comments upon its proposed guidance until 22 July 2016 after which it will look to issue its finalised Approach Document to the industry.

Wind Down Approach Document

The FCA’s proposed Approach Document to wind-down planning will look to place emphasis on the leadership of the firm’s governing body with effective wind-down planning to be enhanced by an effective risk management framework.

The FCA advises that most recently, they have seen a number of firm’s failures caused by stressed financial, operational and other events, including sudden market changes. With this in mind, they believe the key pre-requisites for an orderly wind-down plan will encompass the ability to monitor relevant indicators and make timely and effective decisions.

Whilst the proposed Approach Document helps firms with the overall concept and process of wind-down planning including the time horizon, the scenarios that might make a firm no longer viable and making a decision to wind-down the business, they also provide useful planning specific guidance. In particular the regulator puts forward three important assessments that firms should include as part of their effective wind-down planning, these being:

• Conduct an Impact Assessment to determine who will be affected by a wind down it and when it happens;
• Conduct an Operational Analysis to determine what steps would need to be taken during the process of winding-down; and
• Assess the business’ resources to determine what would be needed to complete the steps determined during the Operational Analysis.

Chapter 4 of the Approach Document looks at more specialised topics when thinking about wind-down planning covering:

• Anticipating reactions
• Communications Plan – an effective communication plan can assist to provide a more effective wind-down process and make sure that all key stakeholders take appropriate and timely actions
• Client Monies & Custody Assets
• Groups of firms and overseas businesses – an assessment of intra-group relationship, where relevant, will help when a firm is part of a larger group. Its wind down planning will often be impacted by the availability of withdrawal of group financial support, processing capabilities and shared resources such as facilities and staff.

Compliance Support Team

With a wide range of prudential and conduct of business experience the consultants at Compound Growth are here to help with any problem large or small whether this be planning for an orderly wind down or assessing the capital requirements required to meet the firm’s liabilities in times of stress.

If our consultants can provide any support or assistance or if your should have a regulatory query you would like to discuss, please click here to read more About Us or contact our Compliance Support Team on 020 3813 2890 or by email.

Orderly wind-down processes - proposed guidance from the FCA