The FCA's Payments & E-Money wind-down guidance- One year on

The continued fallout involving the payments processor, Wirecard, serves as a timely reminder of the prudential regulatory requirements that came into effect for the UK Payments sector, almost a year ago, in July 2020.

The FCA’s guidance outlined key requirements for more robust capital adequacy and liquidity calculations, and a stronger risk and control environment. Their guidance, supported in a Dear CEO letter on 9th July 2020, also underlined the “expectation of firms to put in place more robust plans for winding down”.

To follow on, in January 2021, the FCA delivered a Payments & E-Money: safeguarding & wind-down webinar for consultants, where they provided observations and highlighted concerns following a review of 14 wind-down plans in the Payments sector.

Two points that should cause firms to address their wind-down planning quickly and properly came to light in the webinar.

• Some firms were yet to start work on their wind-down plan and the FCA considered it unacceptable that some firms have taken that long and still not responded to the Guidance.
• Use of pre-provided wind-down templates was worrying. Some consultants have been providing cheaper alternatives via pre-populated ‘fill in the blanks’ style templates. Whilst cost-effective, the result was described as a “sorry sight”. Problems with shortcutting saw the company name added into blanks of a company with a different business model, rendering parts of it ineffective and not fit for purpose.

FourthLine’s team has been working with firms to create wind-down plans across the broader financial services sector for a number of years and has applied that experience to support Payments firms with the new requirements.

We have developed a proportionate and robust approach to helping customers build wind-down plans quickly and effectively.

Our approach aligns with the FCA’s expectations around good practice, outlined in the WDPG section of their Handbook and encompasses the following sections:

• What is the time horizon for winding down the business and who are the people involved in the wind-down process?
• What events or scenarios may trigger a wind-down and how will this play out?
• Through effective risk management, how does the firm prevent reaching a wind-down position and what other tools can be used?
• What are the triggers and governance in making the decision to wind-down?
• Impact assessment across all stakeholders
• Operational analysis – how would the firm execute a wind-down in practice?
• Resource assessment of both financial and non-financial resources
• Cancellation of regulatory permissions

Next steps:

For any questions on the above or if you're interested in how FourthLine may support your wind-down planning, please get in touch here