Financial Services Compliance Blog - Thistle Initiatives

TR22/1 Observations on wind-down planning liquidity, triggers & intragroup dependencies

Written by Thistle Initiatives - Compliance consultancy | Apr 11, 2022 11:00:00 PM

What has happened?

In April 2022, the FCA issued its Thematic Review TR22/1: Observations on wind-down planning: liquidity, triggers & intragroup dependencies, the findings of which apply to all regulated firms.

What are the key points of the FCA Thematic Review?

This review reiterates the FCA’s expectation that firms will have adequate financial and non-financial resources to wind down in an orderly manner and it sets out observations of how they are doing this.

The FCA has completed a piece of thematic work on wind-down planning across larger firms with different business models, in light of the pandemic and the potential harms caused if a wind-down is not orderly. This work focused on liquidity needs during wind-down, intra-group dependencies, and wind-down triggers. This review does not represent a shift in policy or involve any changes to firms’ requirements.

To support the review, the FCA held bilateral discussions with a number of firms on the assessment of cashflow needs, modelling methodology, intra-group reliance, and risk management frameworks, including stress testing. This shed light on various strengths and weaknesses in wind-down planning across a number of business models.

The FCA is encouraging firms to review the observations and to consider 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. The FCA comments in the TR that “it is important that firms consider these observations, as we may take these elements into consideration when performing a review of wind-down plans at a future date” and “many firms would benefit from integrating their wind-down planning process with their Risk Management Framework and financial resource adequacy assessment”

Specific observations based on the business models of non-bank lenders and investment brokers are provided in Annex 1 of the TR.

The key general observations made are:

  • 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, and
  • 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 are credible and operable.

How can we help you?

If you’d like to know more about how we can help you with your wind-down planning or any other regulatory compliance issues, our specialist team is here to help.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.