How to Build a Credible Wind-Down Plan for PRA and FCA Review

A wind-down plan is not a compliance artefact. It is a test of whether your firm can stop operating in an orderly way, under stress, without harming clients, counterparties, or market integrity. The PRA and FCA have made clear through SS3/21, the Wind-Down Planning Guide (WDPG), and successive Dear CEO letters that they expect plans grounded in operational reality, not aspiration. Where firms get into trouble is rarely the structure of the plan. It is the credibility of the assumptions behind it.

Start with the decision, not the document

The first question is not "what goes in the plan" but "at what point would we decide to wind down, and who makes that call." Regulators scrutinise the trigger framework because it reveals whether the board has genuinely thought about the point of no return. Triggers should be a mix of quantitative (capital, liquidity, client outflows, revenue) and qualitative (loss of key personnel, reputational events, regulatory intervention). Each needs a defined owner, an escalation path, and a clear link to the pivot from recovery to wind-down.

What most firms get wrong: triggers set so late that by the time they are breached, orderly wind-down is no longer feasible. The PRA has repeatedly flagged this. Set early-warning indicators that give the board real optionality.

Model the wind-down, not the steady state

The WDPG is explicit that firms must quantify the resources needed to wind down, not merely to continue operating. This means:

• Wind-down costs rise, not fall. Retention payments, legal fees, systems contracts, and professional services typically increase in distress.
• Revenue falls faster than most models assume. Clients leave once wind-down is signalled, and remaining revenue often cannot be collected in full.
• Liquidity is the binding constraint. Capital adequacy is a weaker test than cash availability over the wind-down horizon.

Build a month-by-month cash flow across the full wind-down period, with separate severe-but-plausible and reverse stress scenarios. Reverse stress testing is where the FCA finds the most gaps: firms describe scenarios that would not actually break them.

Make it operationally executable

A plan that cannot be run by the people in post is not a plan. Test it. Walk the executive committee through a tabletop exercise using the plan's own triggers and timelines. Where does it break? Who is missing from the room? Which third-party contracts have termination clauses that would not survive a public distress event?

Pay particular attention to:

• Client money and custody arrangements, and the mechanics of returning or transferring assets under CASS.
• Critical third parties: cloud, custodians, administrators, outsourced operations. What are their rights on your insolvency or distress?
• Staff retention. Key people leave first. Model the cost and the operational impact.
• Group dependencies. If parent support is assumed, document the legal basis and the conditions under which it would, and would not, be provided.

Governance is the test the regulator applies first

The board must own the plan, challenge it, and evidence that challenge in minutes. If the plan appears to have been written by a consultant and signed off without substantive debate, the regulator will see that quickly. Refresh cycles should be annual at minimum, and triggered by material business change. The SMF holder accountable must be named and must be able to speak to the plan without a script.

What good looks like

A credible plan reads as if the people who wrote it believed they might one day have to execute it. The numbers reconcile to the management accounts. The timelines match contractual notice periods. The resources identified are available, not theoretical. The board has visibly tested it.

If you cannot say that about your current plan, the next action is a tabletop exercise before the next refresh, not after.

Frequently Asked Questions

How long should the wind-down period be?

Long enough to return client assets, settle liabilities, and discharge regulatory obligations in an orderly way. For most asset managers this is six to twelve months; for firms with illiquid positions, longer. The period must be justified, not assumed.

How much wind-down capital is enough?

Enough to fund the modelled wind-down under severe-but-plausible stress, plus a buffer for the items firms consistently underestimate: legal costs, run-off insurance, extended systems contracts, and retention. The PRA expects firms to show their working.

Should the plan assume group support?

Only where that support is legally committed and would survive the stress scenario. Soft assumptions about parent liquidity are a frequent weakness the regulators call out.

Who should own the plan at board level?

A named SMF, typically the CFO or CEO, with the board collectively accountable. The owner must be able to describe triggers, timelines, and resource requirements from memory under challenge.

How often should it be refreshed?

Annually at minimum, and whenever there is material change: new products, acquisitions, significant client concentration shifts, or changes to critical third-party arrangements.