Wind-down plans demystified

Wind-down planning continues to be a hot topic and focus area for the Financial Conduct Authority (FCA) with the regulator carrying out multi-firm reviews on wind-down plans and associated Threshold Condition 2.4 (TC 2.4) assessment.

In a sector that has been rife with M&A activity, high sale multiples and increased debt levels leading to leveraged groups, it is to be expected that the FCA continues to focus on insurance intermediaries’ ability to wind-down in an orderly manner.

But it isn’t only intermediaries – carriers are expected to prepare Solvent Exit Analysis in line with Prudential Regulation Authority requirements.

And it isn’t just the insurance sector – the FCA continues to undertake reviews across all sectors. The FCA in June 2025 released their ‘Risk management and wind-down planning at e-money and payments firms – multi-firm review’.

Even firms seeking authorisation are susceptible to needing wind-down plans with the FCA requiring certain firms to submit wind-down plans as part of the authorisation process, to demonstrate their ability to exit markets in an orderly manner.

The due diligence process in M&A provides an opportunity for wind-down plans and associated capital and liquidity requirements to be reviewed, which in turn can influence negotiations.

All in all, wind-down planning to minimise disruption and harm to the market is a key focus area across regulated sectors. But what are wind-down plans? And how do they interact with Threshold Condition 2.4? We look to answer these questions and demystify 8 myths surrounding the wind-down planning process.

So, what is a wind-down plan?

A wind-down plan is a formal document which aims to enable a firm to cease its regulated activities and achieve cancellation of its regulatory permissions with no adverse impact on its clients, counterparties and wider market.

At a minimum, a robust wind-down plan should cover the following:

Business background

Risk management framework

Governance

Wind-down triggers and scenarios

Impact assessment

Operational analysis

Resource assessment

Communications plan

Group interdependencies.

An effective wind-down planning process and plan will assist firms in identifying the operational steps that need to be taken to perform the wind-down, including any recovery options available, and the necessary financial and non-financial resources to ensure this is performed in an orderly manner.

How does this interact with Threshold Conditions 2.4?

Under the FCA’s Threshold Condition 2.4 (TC2.4), regulated insurance intermediaries are required to have sufficient financial and non-financial resources as part of both Business-as-Usual (BAU) and during wind-down.

As part of the wind-down planning exercise, firms will perform financial modelling to stress test, reverse stress test and incorporate the actions and timelines detailed in the operational wind-down plan to identify capital and liquidity requirements.

Inherently, the operational wind-down plan and non-financial resources identified will impact this modelling. Without identifying the steps to be taken and the non-financial resources required, whether that be premises, IT systems, staff or external advisers, firms will struggle to adequately identify financial resources required to be ringfenced for the wind-down.

In such cases, not only do firms run the risk of having insufficient resources for an orderly wind-down, in extreme cases they run the risk of the FCA knocking on their door, identifying and superimposing their own financial resource requirement and having firms ringfence larger cash resources.

Wind-down planning myths demystified

Myth	Demystified
The wind-down plan and associated Threshold Condition 2.4 assessment are standalone documents and processes.	Not quite. Key themes in ‘TR 22/1 – observations on wind-down planning: liquidity, triggers and intra-group dependencies’ and ‘Risk management and wind-down planning at e-money and payments firms – multi-firm review’ show a lack of connection between the risk framework, BAU risk appetite and the wind-down planning process. The wind-down plan and planning process are expected to be embedded in the enterprise-wide risk framework rather than viewed as standalone documents and processes. Firms should be ensuring that early warning indicators, wind-down triggers and associated thresholds are clearly defined (both qualitative and quantitative) and embedded into day-to-day monitoring and management information. There should be a clear link between the triggers identified and the BAU risk appetite for the firm.
Day to day working capital cycle is sufficient to meet the Threshold Condition 2.4 requirement.	Whilst this may be a typical approach seen in negotiating M&A deals, firms will likely have exhausted recovery options prior to deciding to wind-down the business. Stress testing and reverse stress testing identifies depleted cash and working capital resources at the wind-down decision point compared to ‘today’. Considering the liquidity risk and strain faced in wind-down, TC 2.4 funds should be ringfenced separately from the ordinary working capital cycle for a business.
The wind-down plan is a tick box exercise covering only hypotheticals and the wind-down planning process is a one-off exercise – once completed it doesn’t need to be worried about again.	As noted above, the FCA’s view is that the wind-down plan should be embedded in the risk framework for firms and is a valuable tool in risk management rather than merely a compliance tick box exercise. Much like Business Continuity Plans and Disaster Recovery Plans, the WDP should be operable – a guide and playbook that can be picked up and followed in the event of the wind-down. It should detail the roles, responsibilities and operational steps to be taken to ensure an orderly wind-down occurs. Additionally, the insurance intermediary sector is ever evolving. Business and operating models change and so too do the risks the sector and firms face. The wind-down plan is a live document and should be constantly reviewed and revisited taking into account changes in firm’s risk appetite and operating model. Frequently testing the wind-down plan will ensure it remains operable as intended.
Distressed scenario means priority FCA change-in-control authorisation and faster sales processes to realise asset value.	A common assumption seen is the sale of assets especially in those M&A groups that are leveraged and have debts to be repaid. Unrealistic sale timelines are common with underlying assumptions pinned to the FCA providing special treatment, speeding up change in control authorisation. There is no guarantee that the FCA will prioritise distressed sales whilst due diligence by prospective buyers will continue to be ever present, leading to longer than anticipated asset sales.
Banks and private credit institutions know the risk for their capital when they provide funding, so loans don’t need to be repaid.	The aim of the wind-down planning is to facilitate winding down in an orderly manner to prevent adverse impact to consumers, wider market, other stakeholders and prevent discredit to the sector. Capital providers, whether they be banks or private credit institutions, are stakeholders in the market regardless of whether they know their capital is at risk. Inability to repay loans would lead to their own harm, going against the aim of the wind-down planning and could lead to distrust in the sector. Importantly, the wind-down is done on a solvent basis rather than the business being insolvent – firms take action before they are in significant stress when they may have insufficient financial and non-financial resources.
Regulated entities only need to assess wind-down planning on a group basis.	Whilst there is scope for group wind-down plans to be prepared, they require oversight at an ‘entity’ level. Firms are expected to identify interconnectivity with parent company’s and fellow subsidiary undertakings notably where there is a reliance operationally (e.g. distribution chain or provision of back-office functions) or financially. Regulated entities will face different risks to other regulated entities in the same group. Risks and triggers need to be tailored for the entities and oversight on an entity level provided. Groups with a service company, employing central functions such as finance, HR, IT and compliance are common in the sector. Whilst these provide benefits on a BAU basis, regulated entities should ensure they clearly document how such shared services can be handled in case of wind-down and wider group failure that is out of their control.
Key suppliers will be understanding of a firm’s wind-down and will facilitate exiting contracts with ease in a timely manner and minimal cost.	In practice, exiting contracts aren’t as easy as one may expect. Disputes and long contract periods threaten to drag out the wind-down process. Examples seen include disputes with landlords leaving firms on the hook with a larger bill than anticipated due to prolonged periods, high exit costs and associated adviser fees. Stakeholder impact assessment, identification of non-financial resources and strong record keeping in BAU allows firms to quickly identify contract clauses and restrictions that could lead to hurdles in wind-down.
Once the firm is in wind-down, it doesn’t need to concern itself with risks – it is already shutting down.	Firm will face risks even when in a wind-down. These will include risks to the firm’s ability to carry out the wind-down in an orderly fashion whether it be third party disputes, key staff leaving or breach of relevant regulations. Risks during a wind-down plan need to be identified, similar to BAU with the likelihood and severity of occurring clearly documented along with the controls to mitigate these risks and associated key risk indicators.

Why bother with a wind-down plan? At the end of the day, no one aims to wind-down their business.

Even the biggest companies can be susceptible to failing. A firm closing its doors is part of the natural business cycle, and insurance intermediaries are no different. It can be tempting to kick the can down the road and tackle planning when a wind-down occurs or when the FCA comes knocking but, as well as complying with FCA requirements, planning will enable your firm to respond quickly, reduce financial distress and facilitate an orderly and timely exit from the market.

How we can help

PKF Team can assist with wind-down planning by reviewing existing documentation and financial models, or by working collaboratively to prepare a comprehensive plan that aligns with FCA guidance, ensuring adequate financial and non-financial resources are considered and documented for an orderly market exit.