WDPG 3.6 Impact assessment: who will be affected by a wind-down?

It is important, given the FCA’s consumer protection and market integrity objectives, that firms seek to identify and mitigate any adverse impacts on consumers, counterparties and the wider markets that might arise as a result of a wind-down decision. A thorough analysis of all stakeholders will largely help a firm identify who might be affected if it winds down. It also helps a firm to understand how difficult it will be to wind down, for example, if it has many non-cancellable contracts in place which will inevitably increase the costs of winding down and prolong the length of the wind-down period.

The obligations on firms to treat customers fairly or, where applicable, to comply with the Consumer Duty, continue to apply during the wind-down period. This includes, where relevant, considerations relating to client monies and custody assets (see WDPG 4.3 (Client monies and custody assets)) or the needs of potentially vulnerable customers.

Firms are required to keep up-to-date records. These will prove invaluable in assessing the number and types of consumers and counterparties that may be affected by the wind-down.

Firms can support their impact assessment of winding down by a risk assessment of each stakeholder group along with the mitigating actions the firm would consider appropriate. Some factors that a firm may consider include:

1. (1)

   How quickly can a firm conclude any outstanding transactions? Will there be any tax or other implications for customers?

2. (2)

   Can the firm help transfer its customers to another financial institution or, where relevant, firm with a permission to carry on regulated claims management activities? If the firm has many customers to be transferred out, do other firms in the same sector have the capacity to take them on?

3. (3)

   How quickly can client monies and custody assets be returned?

An orderly wind-down minimises the impact on the wider market. Some participants in the market may be more affected than others, for example if the firm is a major provider of products for a particular sector, in which case its winding down may cause a greater impact than would otherwise be the case.

A firm may need to consider relevant employment legislation, especially if it has businesses that involve overseas jurisdictions. It may also choose to identify which employees need to be retained during the wind-down period to help with the wind-down operation, for example, compliance and contact centre employees.

Although it may seem less critical to include consideration of other third parties such as landlords, creditors or trade payables, firms will need a prudent approach to wind-down planning that factors in the effect of winding down on third parties that have contractual relationships with the firm, such as the landlord of the firm’s office. This ensures that essential needs, such as the need for premises, are still provided for during the wind-down period. It may also avoid a creditor, potentially facing the default of the firm on its obligations, triggering insolvency proceedings against the firm in anticipation of its exit.