FCA warns ‘significant work’ needed on wind-down plans
The Financial Conduct Authority (FCA) has warned that “significant further work” is needed by regulated firms to ensure that their wind-down plans are credible and operable.
The City watchdog has conducted a thematic review on how firms are prepared if they need to close.
It doesn’t specifically mention peer-to-peer lending and the FCA said it looked at a variety of business models.
The regulator warned that it identified “widespread weakness in wind-down planning and the need for firms to improve their wind-down planning and processes as well as their wind-down planning documentation.”
Referring to non-bank lenders (NBLs), the FCA said firms still experienced periods of net cash outflows early in the wind-down period.
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This meant that they required some residual cash at the point of wind-down, to ensure the firm did not run out of cash and therefore the firm entering an insolvency process.
“We observed that firms rapidly adjusted their business models to manage demand for lending, provided customers with payment deferrals, preserved equity and headroom under loan facilities, and refinanced debt and negotiated additional lending from wholesale banks and the capital markets where possible,” the FCA said.
“NBLs do not have access to Bank of England liquidity schemes, and many are not able to participate in government lending schemes.
“This has placed significant pressures on them and shows the importance of firms giving due consideration to the contingency funding and wind-down plan.”
The FCA said firms must identify any potential pinch points, particularly when it comes to the financial threshold at which their business may be in trouble.
“Firms can choose to incorporate these observations into their own wind-down planning,” the FCA said.
“Should they wish to apply these observations, they should do so in a way that is proportionate to the nature, scale, and complexity of its own activities.
“It is important that firms consider these observations, as we may take these elements into consideration when performing a review of wind-down plans at a future date.”
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