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Time to wind down? Get planning and governance right

We know that wind-down planning can sometimes be an unwelcome event, but the concept and approach is undeniably critical to demonstrate firms’ associated risk management, governance, and capabilities, as well as ensuring minimal adverse impact on its clients, counterparties, or the wider markets. This includes scenarios where the firm undertakes a strategic exit as well as unexpected crisis or insolvency that makes the firm unviable.

Winding down in an orderly manner includes ensuring capital adequacy and provisions, all while reducing the risk of harm and negative effects on consumers and market participants. It should also capture non-financial plans and assessment of resources required to wind down. Scenario-based planning and governance, management information and governance, and monitoring of the control environment are all very sensible attributes of a strong wind-down mechanism and assessment.

As wind-down plans mature and become integrated into a firm’s risk management frameworks, the ongoing challenge of resilience, governance, and testing remains paramount. At Grath we’ve been exploring ways in which our technology can support firms with this activity and address the observations that arose from the associated FCA thematic review.

What you should consider when winding down

The FCA encourage firms to consider:

  • Triggers, early warning indicators, and management information
  • Liquidity and cash-flow requirements to mitigate consumer and market harm, specifically in times of stress/wind down
  • Accountability and responsibilities within the firm for wind-down plans, scenarios and execution, and oversight by governing bodies from inception and through change – with ongoing periodic refresh ability built in
  • Reverse stress testing and scenarios / risks that could make a firm non-viable or cause significant change/impact, e.g,:
    • Significant financial losses with no signs of timely recovery 
    • Loss of key clients without realistic prospect of their replacement in good time 
    • Loss of critical infrastructure (e.g. essential IT systems) with no signs of timely recovery
  • Intra-group reliance and whether the wind down is entity-specific or impacts the wider group

What makes a good wind-down plan?

Wind-down plans are not a one-off exercise, they need to be consistently reviewed, refreshed, and evolved to keep abreast of the business and the changing landscape and environment. They should also be capable of testing, outcome assessment, and approval via the firm’s management/governing body.

According to the FCA ‘a good wind-down plan is most likely to be supported by an effective risk management framework’. This may include:

(1) A clear risk appetite that has been approved and validated by the governing body

(2) Analysis of wind-down scenarios

(3) Appropriate reporting and monitoring of management information, risk metrics and early warning indicators 

(4) Any potential recovery options

Clearly defined risk appetite, risk framework and taxonomies, and risk metrics are key elements, supported by robust governance, resilient control and operating environment oversight and activities, and well-structured management information are important elements for firms. As trigger thresholds mature, firms should be encouraged to continually assess, monitor, and test their wind-down plans and foundations. Governing bodies should also make sure they are fully appraised and have confidence in the current wind-down plans with sufficient information available to make timely decisions in line with any delegated authorities or direct senior management responsibilities.

Where to start

So, how do you do all of that – which may seem much easier said than done? Grath have solutions that allow you to structure your risks, map them to controls and processes, and categorise them to the associated thematic touchpoints, with a full multi-layer assurance solution to help develop your wind-down plan assessment and maturity analysis 

The platform can support ongoing periodic testing, outcomes, and remedial actions, all tracked with audit-stamped attestations and ownership with evidence stored in the same environment – giving firms a one-stop shop for wind-down planning compliance and demonstration of current state maturity.

Grath can formalise and monitor your risk framework 

Firms need to assess and identify what’s required to make their wind-down planning credible and operable while being able to evidence this in practice. As the FCA suggests in their observations; firms should assess current state, structure your wind-down plans, have them approved and revalidated often – putting in place a process that focuses on testing the outcomes of wind-down planning – demonstrating to the firm’s board/governing body and the regulator.

Bear in mind that, in order to demonstrate that plans are credible, operable, and minimise harm, they must be dynamic in nature and be capable of immediate execution and continual revision, enhancement, and updates as the firm’s position continually evolves.

Firms should ideally embed wind-down planning into their risk management framework, recognising that disorderly wind-down is a key driver of harm and would not provide good customer outcomes.

Testing of the wind-down plan is necessary to show its operability and credibility to the firm’s board.

Wind down at pace with Grath’s rapid deployment 

Grath can help you with rapid deployment and fast implementation – we have established solutions that support the mapping out of the firm’s risks, wind-down process and controls, and purpose-built assurance reporting to deliver attestation to the firm’s governing bodies, showing the holistic preparation and assurance activity. Firms can easily link and evidence thematic and connecting processes and controls – aligned to a firm or wider group – and then structure an enhancement plan, with maturity findings, risk and mitigation actions, and document the outcome from reverse stress testing and interconnectivities underpinning wind-down.

Connectivity is supported by a granular mapping exercise to understand the activities involved with all business and operational processes; the resources associated to those processes; and where those resources come from. 

Grath supports firms’ wind-down plans and obligations, linking homogeneously to the firm’s operating model, activities, and controls – from obligations against which risk, controls, and process can be mapped to show the resilience of firms’ organisational arrangements.

Wind-down triggers should be closely linked to the firm’s risk management frameworks and be monitored closely particularly during times of stress. A sound risk management and controls framework should allow firms and their senior management to identify, understand, manage, monitor, and mitigate the risk of potential harm caused to consumers and markets and make decisions quickly and accurately.

Interested in learning more?

If you’d like to know how Grath’s technology can help with your wind-down planning, improve your regulatory compliance, and bolster your risk management process, then we’d love to talk.

Get in touch with us at grath.com/contact

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