Wind-Down Planning for FCA Firms: What the Regulator Expects

What wind-down planning actually is

Wind-down planning deals with the situation where a firm's regulated business is no longer viable, or the firm decides to exit, and needs to close down and give up its permissions in a controlled manner. The aim, in the FCA's words in FG20/1, is to 'reduce the impact of a firm's failure'. A good plan sets out the scenarios that could push the firm into wind-down, the governance and management information needed to spot those scenarios early, and the operational steps to close the business without harming customers.

It is important to separate two very different endings. A solvent wind-down is a controlled, self-funded closure where the firm still has enough resources to pay its debts as they fall due, return client money and assets, and meet the costs of closing. Insolvency is the opposite: the firm can no longer pay its way. FG20/1 points to the Insolvency Act 1986, which determines a firm is insolvent when it cannot pay its debts, applying a 'cash flow test' of meeting debts as they fall due and a 'balance sheet test' of whether assets exceed liabilities. The whole point of wind-down planning is to keep a firm on the solvent side of that line for as long as possible, so that any exit is orderly rather than a disorderly collapse handled by an insolvency practitioner.

The Wind-Down Planning Guide (WDPG) in the FCA Handbook is the primary reference. It applies proportionately across FCA solo-regulated firms, and FG20/1 makes clear that all firms should be able to 'explain how to close the business in an orderly way', scaled to the nature, size and complexity of what they do.

Why the FCA expects a plan: threshold conditions

The requirement does not float free of the rulebook. Every firm authorised under the Financial Services and Markets Act 2000 must meet the threshold conditions, which require it to have 'appropriate resources', both financial and non-financial, for the regulated activities it carries on. This is set out in COND 2.4 of the Handbook. TR22/1 confirms this obligation continues 'during the wind-down period, while a firm maintains its Part 4A permissions'. In other words, the firm must be resourced not only to trade but also to close.

FG20/1 frames the same point through the Principles for Businesses. Principle 4 requires a firm to maintain adequate financial resources, and the guidance ties adequacy directly to the ability to wind down. The FCA also links poor financial planning to conduct risk: a firm under pressure or on the verge of failure may cut corners, mis-sell, or fail to return client assets, which is precisely the harm wind-down planning is meant to prevent.

For firms seeking authorisation, this matters at the front door. Assessors want to see that an applicant understands how it would exit the market before they grant permission, because a firm that cannot demonstrate an orderly exit is not clearly meeting the appropriate-resources condition. A credible wind-down plan is therefore part of showing you meet the threshold conditions, not an optional extra to be written later.

The core components of a wind-down plan

FG20/1 sets out what wind-down planning typically covers: the scenarios leading a firm to wind down, the potential impact on consumers and financial markets, the operational tasks required and the time needed to execute each task, the capital to absorb winding-down costs and additional losses, and the liquid resources necessary to support cash outflows. A credible plan turns each of these into concrete numbers and named actions rather than general statements.

Governance sits underneath all of it. The plan should identify who decides to wind down, how they are informed, and how the decision is documented. TR22/1 stresses that senior managers 'should have clear lines of responsibility for adequate systems and controls, including wind-down planning', and that the plan should be embedded in the firm's risk management framework rather than kept as a document on a shelf. Where a firm is part of a group, TR22/1 notes it may plan at group level provided the planning 'adequately covers each individual, regulated firm within the Group'.

The table below summarises the core components and what each is there to cover, drawn from FG20/1 and TR22/1.

Triggers: knowing when to act

A wind-down is only orderly if the firm starts it early enough. TR22/1 describes triggers as 'an essential part of wind-down planning' and says they 'should be designed such that the firm enters wind-down at a point where it will have sufficient financial and operational resources to complete an orderly wind-down'. If a firm waits until resources are nearly exhausted, the board's options narrow and an orderly exit may no longer be possible.

The FCA found that firms often relied on vague qualitative statements rather than hard numbers. It expects quantitative triggers: thresholds which, once reached, prompt the board to consider whether to wind down. TR22/1 gives a plain example: 'if the firm needs 5 million pounds of cash to complete its wind-down, the firm should consider winding down once it reaches that cash threshold'. Triggers should be a more extreme calibration of the firm's existing risk appetite metrics, monitored through regular management information, and informed by stress testing and reverse stress testing so they reflect the firm's real vulnerabilities.

Because a wind-down usually follows a crystallisation of the firm's risks, triggers should sit within the risk appetite framework, with earlier warning levels giving the board time to attempt recovery before the point of non-viability. Testing how those triggers would behave across a modelled stress helps the board confirm they would be hit early enough to act.

Liquidity and cash-flow modelling in wind-down

Liquidity is where the FCA found the most widespread weakness. TR22/1 observes that firms 'often consider capital needs in their wind-down plans but do not consider liquidity'. During a wind-down a firm must continue to pay its liabilities as they fall due; a failure to do so 'could push the firm into a disorderly wind-down or an insolvency process'. Capital adequacy alone is not enough, because a firm can be solvent on paper yet run out of cash at a particular point in the closure.

The review groups liquidity issues into three categories that firms should quantify: cashflow timing mismatches, the net cash impact of wind-down, and starting a wind-down from an already stressed cash position. Cashflow timing mismatches arise, for example, where an investment broker funds temporary gaps between paying clients and receiving funds from exchanges. The net cash impact means assessing whether the firm is likely to be net cash positive or negative at the end of wind-down once the total cost of wind-down and the realisable value of its assets are taken into account. And a firm entering wind-down after a stress may already have depleted cash and lost access to overdrafts and other facilities.

TR22/1 highlights good practice around ring-fencing liquidity: holding a pool 'explicitly for the purposes of wind-down, separate from other existing liquidity requirements', with controls so it can only be used following board approval. Firms should also check that any segregated account is not subject to a bank's right of set-off, which could otherwise leave the ring-fenced cash unavailable when it is needed most.

Investment firms: wind-down planning and the ICARA

For MIFIDPRU investment firms, wind-down planning is not just guidance; it is built into the prudential regime. Under the Investment Firms Prudential Regime, every firm in scope must run an internal capital adequacy and risk assessment, the ICARA process. As the FCA puts it, 'through the ICARA process, firms identify the risk of harm in their operations and provide appropriate resources to mitigate harm, whether as a going concern or when winding down'.

The obligation is anchored in the overall financial adequacy rule (OFAR). The FCA states that firms 'must hold sufficient financial resources to support on-going activities and wind-down in an orderly manner'. That means holding both own funds and liquid assets sized not only for continuing operations but for an orderly exit, with wind-down planning forming an integral part of the ICARA rather than a separate exercise.

When the FCA reviewed IFPR implementation, it was blunt. Its published observations state that 'wind-down planning assessments remain weak in terms of scope and quantification', reflecting 'an incomplete understanding of the purpose of the exercise'. Firms used 'unrealistic assumptions, insufficiently detailed modelling and poorly justified estimates of resources needed to support an orderly wind-down', and several 'completed wind-down planning estimates without a starting scenario of stress or a sudden trigger event'. The lesson for investment firms is that the ICARA wind-down section has to reach a clearly quantified conclusion on whether own funds and liquid assets are enough to close the firm down in orderly fashion.

Intra-group dependencies and testing the plan

Firms that sit inside a group face an extra layer of risk. TR22/1 found that many UK firms considered group membership only as a benefit and 'have not considered the stress caused by interconnectivity, for example, parental failure'. Where a firm depends on group funding, a group IT system, or a group entity that owns key client relationships, the wider group can become 'a single point of vulnerability for the UK regulated entity'. FG20/1 makes clear firms must be able to wind down in an orderly manner regardless of the scenario, including failure of the group.

The FCA expects firms to map these dependencies granularly, assess the impact of each on the ability to wind down, and put mitigating actions in place while the firm is still in a business-as-usual state, because many measures, such as novating third-party contracts, are not credible to attempt during a wind-down. Some firms use a group service company that owns contracts, employs staff and holds resources so services can continue even if other group entities fail, though the review notes this is not suitable for every business model.

Finally, a plan is only as good as its credibility. TR22/1 states that 'testing the outcomes of wind-down planning is the best way of showing the firm's Board, as well as the FCA, that the plan and process is credible and operable'. Testing surfaces the unrealistic assumptions and hidden timing gaps that a paper exercise misses, and it gives the board genuine confidence that, if the day ever comes, the firm can exit without harming its customers. Firms that want a structured way to build and maintain this discipline can explore the Nasara Connect authorisation toolkit or book a demo to see how the controls fit together.

Conclusion

Wind-down planning is one of the clearest tests of whether a firm is genuinely well run. The FCA does not expect firms never to fail; it expects them to fail, if they must, in a way that returns client money and assets, meets liabilities, and avoids passing costs to other firms through the compensation scheme. That expectation is anchored in the threshold conditions from the moment a firm is authorised, and for investment firms it is hard-wired into the ICARA and the overall financial adequacy rule.

The common thread across FG20/1, the Wind-Down Planning Guide and TR22/1 is that a credible plan is quantified, funded, triggered early and tested. Model the cash, not just the capital. Set quantitative triggers linked to your risk appetite. Ring-fence liquidity for the exit. Map your intra-group dependencies honestly. Then test the whole thing so your board can stand behind it. Do that proportionately for the size and complexity of your firm and you will be meeting the FCA's expectations rather than scrambling to meet them under pressure.

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