Payments firms - Growth and risk management: two sides of the same coin

Rarely will Boards find themselves discussing their strategic ambitions and wind-down planning simultaneously. And yet, in its latest feedback, the FCA clearly positions growth and effective risk management as two sides of the same coin.

Risk management frameworks

In the latest signal of its drive to rebalance risk and support growth, the FCA has affirmed how an effective risk management framework (RMF) should develop and be proportionate to the nature, size and complexity of a firm. This facilitates better decision-making and, in turn, promotes sustainable growth over the longer term.

In a broad review of enterprise and liquidity risk management and wind-down planning, the FCA engaged with a sample of 14 e-money and payments firms (‘payments firms’) over 2024/2025, across a variety of business models.

The findings and feedback were widespread. Indeed, in previous times, they might have been described as highly critical. However, the overall tone here is intended to be constructive and supportive of firms’ investment in an effective enterprise-wide risk management framework. The FCA’s list of areas for improvements are symptomatic of important features that, in our experience, can commonly be under-developed or, at worse, left behind as growing and innovative firms face a juggling act of commercial and operational priorities.

The FCA’s feedback extends to good (and bad) practice in firms’ liquidity risk management, as well as consideration of group risk (where applicable to the business model in question).

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Wind-down plans (WDPs)

In recent years, we’ve observed how payment firms have positively taken account of the FCA’s Wind-down Planning Guide (WDPG). However, the FCA has now called out how WDPs are commonly disconnected from the firm’s RMF and require further development in order to be effective and fully operable.

In summary, while the regulator recognises efforts made by payments firms to create WDPs that align with stand-alone requirements and guidance, not one WDP across their sample of firms fully met the FCA’s expectations.

This is not the first time that the FCA has stated that payments firms’ WDPs need improvement. For example, a review in January 2021 also showed that no selected firms met expected standards. Then, in 2022, a broader Thematic Review across different financial services firms (TR22/1) highlighted shortfalls in wind-down planning. More recently, Dear CEO letters indicating regulatory priorities for the payments sector published in 2023 and 2025 have outlined required improvements in wind-down planning.

In a return to its more traditional language, the FCA reminds firms that disorderly wind-down is a key driver of harm. The purpose of a wind-down plan is to position a firm for an orderly market exit, if required, and to minimise any adverse impact on consumers, counterparties or the wider markets. Importantly, it’s expected to cover scenarios where a firm undertakes a solvent exit, as well as winding down due to an unexpected crisis or insolvency. As an example, shortly after the FCA completed their wind-down plan review, foreign exchange markets went through a turbulent period, which affected some payment firms’ liquidity resources. This reinforces the importance of wind-down planning and identifying potential events that could trigger a wind-down.

Areas of good practice

The FCA saw the following elements of good practice in the wind-down plans reviewed, but noted that these varied in terms of their development and completeness:

• Wind-down plans had sufficient detail and considered all material activities
• Plans had an appropriate structure and documentation, assessing stresses and quantifying resources required
• There was a level of integration of wind-down planning with the wider risk management framework
• Firms had undertaken reverse stress testing to inform points of non-viability and wind-down triggers
• There was detailed modelling of resources required for wind-down
• Key risks to the WDP were identified
• There was regular testing of WDP operability via run-throughs or workshops.

Areas for improvement

The following areas were identified as inadequate by the FCA – and should be addressed by payments firms as a priority:

• The setting of wind-down triggers was inconsistent with the risks identified in the risk management framework and not quantified according to risk appetite
• Firms didn’t consider triggers around safeguarding asset shortages or the lapsing of safeguarding insurance, where relevant. Plans contained insufficient detail about how it would work in practice, making them inoperable
• There was limited financial modelling throughout the wind-down process. There was no consideration of the impact on capital from changes to revenues and costs, or the impact on liquidity when sufficient cash may not be available to execute the plan
• Firms assumed key risks would not crystallise during wind-down and didn’t test the impact of stresses that could take place after a wind-down has started
• Firms didn’t analyse how the wind-down timeline could be delayed by issues such as safeguarding, financial crime or contacting customers. For example, firms didn’t consider meeting obligations to safeguard residual customer funds for six years
• There was undue reliance on group WDPs or resources.

In further highlighting the interconnections between discrete but high priority regulatory frameworks, the FCA’s feedback specifically captures some of the key implications of safeguarding (customer funds) to WDPs, wind-down timelines, shortfalls, residual funds and safeguarding insurance. With major changes planned for the safeguarding regime for payment firms (CASS 15), the interdependency between effective WDPs and safeguarding will only become more apparent.

Next steps for payments firms

As a priority, payment firms should critically assess their current WDP alongside the FCA’s latest findings – which provide concise and constructive feedback likely to be of interest to boards, risk and audit committees.

Payment firms should embed wind-down planning into their wider risk management framework and avoid a siloed assessment of risk that will inevitably hamper effective decision-making.

Importantly, firms shouldn’t view wind-down planning as a “once and done” exercise. Rather, WDPs should be prepared and regularly reassessed alongside (and as part of) the firm’s evolving risk management framework, ensuring it aligns with regulatory expectations and operational realities.

How we can support payment firms with their wind-down planning

Through our extensive work with payments firms, we bring hands-on experience of wind-down planning under a variety of circumstances, including during or in preparation for regulatory interventions (e.g. s.166 Skilled Person Reviews), solvent exits, restructuring procedures and routine independent assurance engagements.

Our financial services team can support payment firms with:

• Gap analysis against FCA guidance: Identifying areas where the current WDP may fall short of FCA expectations and what enhancements can be made
• Scenario development, identifying trigger events and stress testing: Helping firms develop, model and stress test wind-down scenarios based on plausible trigger events
• Governance and ownership: Clarifying who is responsible for maintaining, activating and overseeing the WDP, ensuring clear board and senior management engagement
• Financial resourcing planning: Assessing resources required to execute a wind-down, including modelling forecast costs under various scenarios
• Operational playbook: Helping firms draft practical, step-by-step procedures for executing a wind-down, covering items such as customer communication, IT and other third-party dependencies, and workforce engagement
• Safeguarded funds: Ensuring WDPs include appropriate controls and contingencies for dealing with safeguarded funds
• Integration into business as usual (BAU) processes: Embedding the plan into the firm’s governance, risk management and business continuity arrangements
• Training and fire-drills: Organising exercises to test readiness, staff familiarity and practical effectiveness of the WDP.

For more information and advice, contact Jarred Erceg or Paul Staples.