Since July 2020, the Financial Conuct Authority (FCA) have been mandating that Payment Service Providers (PSPs) have wind down plans (WDPs) in place as a condition of authorisation. Even though it has been nearly two years since this requirement was implemented, some PSPs are still unsure what they need to do and why.
Why does the FCA want PSPs to have wind down plans?
Due to recent financial downturns and the ongoing effect of Covid-19, the FCA have become increasingly concerned that PSPs would collapse unexpectedly, causing significant harm to both customers and the wider market. As a result, the FCA have demanded that firms have plans in place to identify when a wind down is necessary and to manage it in an orderly fashion.
The difference between a WDP and a BCP or DRP:
A WDP exists separately from a Business Continuity Plan (BCP) and a Disaster Recovery Plan (DRP). A BCP exists to outline how a firm will continue to operate when facing unforeseen circumstances, a DRP explains how a company will resume business following an unplanned incident.
Although like a WDP, BCPs and DRPs cannot act as a substitute for a WDP. A WDP focuses on ending business activity in an organised and timely manner, while BCPs and DRPs focus on continuing operations. Firms should review their BCP and DRP when drafting a WDP as when firms wind down business recovery and the cessation of business should operate in tandem.
The FCA updated their approach document in November 2021 to clearly set out the requirements for an effective WDP.
Firms are expected to produce effective WDPs to manage their liquidity, operational and resolution risks. The WDP should consider the winding-down of business under different scenarios, including a solvent and insolvent scenario.
Some of the key areas to be addressed in any WDP are:
Information for the administrator:
The WPD should contain information required by administrators or liquidators so that customer funds can be quickly identified and returned as a priority.
Funding and triggers
The WDP should outline costs, sources of funding and the likely trigger points for insolvency
The WDP is expected to consider sourcing alternative providers for clients and how to transfer over to them without causing undue harm to the client.
The WPD should contain an impact assessment, operational analysis, communication plan and resource assessment. These should cover all aspects of the wind-down process. Stress tests should be performed regularly to help identify the circumstances in which business operations cease to be viable
Things to look out for:
Now that WDPs have become obligatory for authorisation, PSPs need to take the prospect of winding down seriously. The FCA is concerned that PSPs have generic WDPs which that are unfit to protect customers in the event of collapse. WDPs, like all interna policies, should be customised to the specific circumstances and operations of your business and be as detailed and realistic as possible.
The FCA are looking for WDPs to be effective and actionable. In doing this the interests of key stakeholders must be considered. The planning of the WDP will require the involvement of key individuals from across the firm to ensure that everyone is aware of the plan and can effectively implement it when needed. The FCA will expect directors to take an active role in preparing the WDP and be willing to trigger wind-down procedures before an insolvency exit is the only option.
How AuthoriPay can help
AuthoriPay has supported many PSPs with the implementation of their wind down plans; not only ensuring that they address the FCA’s key requirements and are tailored to the business’ needs, but also that they are pragmatic in nature. This, combined with our unrivalled experience in the payment service and emoney sectors makes us the perfect port of call for assistance.
Richard Ellicott – Regulatory Specialist.