On 19 March 2019, I gave a speech at a conference on the subject of wind-down planning. Since the Wind-down Planning Guide (WDPG) was incorporated into the FCA handbook in 2016, there is a greater emphasis on firms to have appropriate wind-down arrangements in place - supported by the necessary financial and non-financial resources. This applies to all firms regardless of size or scale, from small peer-to-peer lending firms (P2Ps), to large multinational banks.

Recently I’ve noticed that many firms confuse some terminologies that have very different technical meanings – and this can be a barrier to compliance and achieving best practice. Based on each firms’ size and permission profile, the regulations below should be considered collectively and with the correct terminology. To clarify the different definitions, I’ve put together a handy crib sheet, summarised below:

Terminology Meaning


As per the WDPG, this is a process to cease a firm’s regulated activities and achieve cancellation of permission with minimal impact on its clients, counterparties or the wider markets. WDPG is a guidance and any firms (eg banks, investment firms, consumer credit firms and P2Ps) should take this guidance into account when preparing wind-down plans.

Recovery and resolution

These terms have specific meanings under the Bank Recovery and Resolution Directive (BRRD). It is applicable to banks and €730k full scope investment firms, and are defined as follows:

Recovery - these are actions that a firm may have to take (or are directed by the regulators to take) when it is in distress. It is possible for an FCA-regulated firm to take the view that there will only be a limited range of recovery options available, hence an orderly wind-down plan is stated as part of the recovery plan submission.

Resolution - when a firm is failing, or likely to fail, and there is no reasonable prospect of alternative private sector recovery measures, the resolution authority will decide if the resolution tool should be deployed.

Reverse stress test (RST)

As the FCA made clear, RST is not the same as wind-down plan. Under RST, a firm will identify the adverse circumstances which would cause its business plan to become unviable. SYSC 20 prescribes the RST requirements.

Solvent wind-down (SWD)

This is mainly for the UK subsidiaries of large overseas investment banks, or the investment banking arm after bank’s ring-fencing. It is to assess the ability to wind-down the trading book as a going concern, in a stressed environment. It is primarily used to find out the cost of exiting the UK market, especially on winding down the trading book, eg the maturity and complexity of trading book, concentration, valuation, funding and liquidity.

Living will

This is a term more widely used in P2P and consumer credit sector. There is no official definition, but most likely to refer to requirements under SYSC 4.18A-E R. The focus is that the existing loan contracts will continue to be managed and administered in accordance with the contract terms, if at any time it ceases to carry on the activity.

This has gained some attention from the regulator recently, as the FCA issued Dear CEO letter in March 2019 to P2P firms raising concerns about the inadequacies of these plans.

Operational continuity in resolution (OCIR)

This is a PRA regime for banks/systemically important investment firms. OCIR ensures the operational arrangement for the critical services it receives, facilitating the effective execution of its recovery plan, orderly resolution and post-resolution restructuring.

CASS Resolution Pack

Maintain retrievable CASS record to ensure timely return of client money and assets in the event of insolvency or resolution.

With growing emphasis on wind-down or related planning, it is important to fully understand the key concepts, in order to establish the correct wind-down plan. For example, a P2P firm will follow a very different approach to wind-down to an investment firm. Under SYSC4.18A-E R, P2P firms are fundamentally concerned with how the contracts would still be managed should the platform fail, while wind-down costing in the ICAAP process aims to guide the decision if the regulatory capital level is adequate. As a first port of call, a regulator is likely to check the conceptual understanding of these areas and the basic assumptions underlining any course of action.