I was recently reminded of an upcoming presentation my colleague Dan Conway, and I are due to be delivering to the Association of Professional Compliance Consultants (APCC) on wind down planning and the importance of an effective and executable plan for FCA-regulated businesses.
To help get the creative juices flowing, I thought it would be helpful to jot down my thoughts on what Dan and I are seeing on the ground when reviewing the plans of our clients, as well of some of the challenges faced by fellow APCC members and compliance consultants more widely in assisting their clients with reviewing and improving their plans. Ordinarily, we do not write the wind down plans themselves (although we can if that is the ask); where we add value is from our real-life, practical experience working alongside management teams winding down their operations in both solvent and insolvent scenarios.
The strong messaging coming out of the FCA is that plans need to be in an “executable form”. There’s no definition as to what “executable” means in practice, but our view is that the wind-down triggers must be commercially relevant to the business (and measurable) and a person unfamiliar with the business and its operating model should be able to understand and, ultimately, implement the plan.
Whilst that all sounds relatively simple (and reasonable) enough, in our experience it seems there are some “easy wins” that are being missed by businesses and their compliance consultants in the drafting and annual review of their wind down plan. Our starting point is that all wind-down plans should typically contain the following key components:
- Scenario planning;
- Details of management and other key personnel;
- Financial resources summary;
- Key implementation processes and steps;
- Stakeholder communication strategy; and
- Client/customer money and assets reconciliation / return strategy.
‘Financial resources’ is a key area of focus and importance in any wind down plan. Management should ensure that a robust costing forecast has been prepared to cover the entire duration of the wind down period. We would suggest that costs are “bucketed” into ‘ordinary expenditure’ such as wages, rent, utility costs etc and ‘extraordinary expenditure’ like legal and other professional fees, retention payments to key staff and early termination costs / penalties (triggered only on a wind down).
All stakeholders and their associated key risks should be addressed, including how they are communicated with and impacted under a wind down scenario. Often, stakeholders such as lenders and related group companies (where there may be a dependency for support services, for example) are overlooked when considering how operations are wound down.
There is no “silver bullet” in producing a wind down plan that is perfectly “executable”. Wind down plans are designed to be responsive to internal and external business risks, requiring the scrutiny of management as they are reviewed periodically (at least annually) to make sure they are fit for purpose.
Now, I really should start on that presentation…