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Could your Wind Down Plan trigger a liquidity requirement?

Updated: Jul 12, 2021

The FCA issued ‘Finalised Guidance 20/1 - Our framework: Assessing Adequate Financial Resources’ in June 2020 in a bid to ensure that firms remain financially viable during difficult times. Where firms do need to wind down, the Guidance looks to ensure that they have the financial resources to do so in an orderly manner and without causing harm to consumers or to the integrity of the wider financial system.

In the Guidance, the FCA highlighted the need for a firm to hold sufficient liquid resources (in other words cash) to wind down should they need to. We are now seeing Supervision put the Guidance into action, requiring selected firms to hold a level of liquid resources on an ongoing basis to cover the potential need to wind down.

It is suggested that funds should be held in a UK bank account, free from debentures or charges and ring-fenced for use only once the decision to wind down the business has been taken by the Board. The duration of the requirement will be the period of economic uncertainty resulting from Covid-19 - a hard time line to predict.

Liquidity requirements are not new for many firms but requiring firms to ringfence liquid funds in case of insolvency may be. It is currently one of three options given under guidance in SYSC for P2P firms in their wind down planning; understandably its not a route many firms choose, given it reduces working capital.

It is understandable during Covid-19 and the economic upheaval associated with it, that the FCA is particularly focused on financial resources and on proper wind down planning. High profile insolvencies from the last few years continue to make headlines and it is the investor that loses most. That being said, reducing the working capital of firms during a time of economic stress could accelerate the very problem it’s trying to prevent.

Our advice for all firms is to take the time to prepare a well thought out, robust wind down plan with appropriate triggers, impact analysis and stress testing. We know that the FCA’s expectations of what a good wind down plan looks like has increased dramatically over the last 12 months and to date we haven’t seen the FCA impose this liquidity requirement where they are comfortable with the wind down planning of a firm.

If you need any help or advice on your financial resources or wind down planning, please do get in touch on


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