Payments, financial resilience and wind-down plans

Yesterday, the FCA published survey results that will not have surprised many in the sector. As at the end of October 2020, 4,000 financial service firms were identified with low financial resilience, with the Payments & E-money sector having the lowest proportion of profitable firms.

Certainly, this past year has brought many challenges for us all, and the picture for the sector, from what we see, is a mix bag of fortunes with some clients doing very well and others feeling the financial realities too keenly.

Over the past while, we have helped many clients gather the information required by the FCA in (Covid-19) financial resilience survey that Colin Sloan first blogged about in the summer 2020. The survey covers liquidity/ cash availability and needs, recent financial performance, scale of business activity, and access to government schemes.

23,000 solo-regulated firms have been sent these surveys (in two tranches) and their response shows the FCA the real-time effect this pandemic is having on their finances. The survey has been repeated twice so far with the third survey due to release by the 19 January to Tranche 1.

In their post about the results, the FCA acknowledges that that their “role isn’t to prevent firms failing. But where they do, we work to ensure this happens in an orderly way. By getting early visibility of potential financial distress in firms we can intervene faster so that risks are managed and consumers are adequately protected.” This is where you, the firm, can take back control by preparing a robust wind-down plan (WDP).

You may be familiar with the WDP requirement introduced back in July. If not or you are still seeking a bit more clarity, you can find out more in our blog and webinar.

The FCA is actively requesting firms for their WDP, so there is no hiding from the requirement to produce one, but they are also very useful and valuable document which you can use to monitor your business. Done correctly, they involve the management team reviewing potential wind-down scenarios that may result in the business no longer being viable and tracking the metrics from these scenarios to advise management decisions.

Deciding what the ‘at-risk’ and ‘wind-down’ thresholds should be is the challenge and requires the business to come together and review the ‘as-is’ state of the business and what it may look like in the future. But once these difficult conversations happen, the output is invaluable and these metrics, which should be monitored and reported to the senior management team, give real-time insights to the business.

Knowing when you are ‘at-risk’ gives your senior management team the opportunity to work on getting the financial status back to healthy levels but also ensures that if in the unfortunate event of triggering the ‘wind-down’ threshold alert, the wind-down can be done in an orderly manner where consumers are considered and not disadvantaged. A well-considered wind-down plan can be used as a basis for a route to recovery, and in the worst-case scenario can remove some of the stress of an already difficult decision to wind-down, as you will already know the steps you need to take.

For more guidance, the FCA is hosting a webinar for payment and e-money institutions on both wind-down plans and safeguarding on the 21 January 2021 which you can register for here. If you need further help, please feel free to reach out to us to see how we can help you further, we are currently working with a number of clients to assist with WDP, stress-testing and ICAAPs, all of which can assist in assessing your financial resilience.

This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate. 

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