Wind-Down Planning for Payment Firms: FCA Requirements and Operational Considerations

Wind-down planning is one of the most underappreciated elements of a payment firm's regulatory framework. The FCA increasingly views the ability to wind down in an orderly fashion as a core indicator of good governance — not a box-ticking exercise reserved for firms in distress. A credible, documented wind-down plan demonstrates that senior management understands the firm's operational dependencies, client obligations, and capital requirements under stress. Deficiencies in wind-down planning are a recurring finding in FCA supervisory visits and are increasingly cited in authorisation decisions.

The Regulatory Basis

The FCA's expectations for wind-down planning derive from several sources. For EMIs and payment institutions, the Payment Services Regulations 2017 (PSRs 2017) and the Electronic Money Regulations 2011 (EMRs 2011) set out capital requirements that must be maintained at all times. The FCA's Approach Document for Payment Firms and EMIs makes clear that firms are expected to hold wind-down capital — capital over and above regulatory minimum capital that would enable the firm to wind down without harming clients or creditors.

Additionally, the FCA's SYSC sourcebook (Senior Management Arrangements, Systems and Controls) requires firms to have adequate risk management systems and controls. SYSC 4.1.1R requires a firm to have robust governance arrangements, which the FCA interprets as including planning for business continuity and orderly wind-down. For firms subject to the Senior Managers and Certification Regime (SM&CR) — which includes most authorised payment firms — the Chief Executive or equivalent SMF1 holder is typically responsible for wind-down planning as part of their prescribed responsibilities.

What a Credible Wind-Down Plan Contains

The FCA does not prescribe a specific format for wind-down plans, but supervisory guidance and published decision notices make clear what the regulator expects to see. A credible plan should include:

Trigger Framework

The plan should identify specific quantitative and qualitative triggers that would initiate wind-down. These should not be set so late that they only fire when the firm is already insolvent. Common triggers include: own funds falling below 110% of the regulatory minimum; inability to maintain a safeguarding account at an acceptable credit institution; loss of a major banking or payment provider relationship; material regulatory investigation; or loss of key management without identified succession.

Wind-Down Capital Calculation

This is the quantitative heart of the plan. The firm must estimate the costs of ceasing regulated activities in an orderly way, including: redundancy costs; systems run-off costs; professional fees (legal, insolvency practitioners, auditors); ongoing safeguarding obligations during the wind-down period; and any contractual obligations to clients or counterparties. The wind-down capital buffer should be the higher of six months' fixed overheads and the estimated total wind-down cost.

Client Funds and Safeguarding

For EMIs holding customer funds, the wind-down plan must address how safeguarded funds will be returned to clients. This includes the legal mechanism for returning e-money balances, the timeline for doing so (the EMRs 2011 require redemption at par value), and the operational process for client notification and fund transfer. Where clients cannot be contacted or do not respond within a reasonable period, the plan should address dormant funds procedures.

Contractual Dependencies

Payment firms typically depend on a small number of critical third-party contracts: their banking and safeguarding account providers, card scheme memberships, payment gateway technology, and core banking systems. The wind-down plan should map these dependencies and assess: (a) which contracts have change-of-control or insolvency clauses that could accelerate termination; (b) what the operational impact of each contract terminating immediately would be; and (c) whether any critical services could continue for a wind-down period under existing contract terms.

Capital Adequacy During Wind-Down

One of the most technically challenging aspects of wind-down planning is capital. Under the PSRs 2017 and EMRs 2011, a firm must hold own funds at all times equal to or exceeding its regulatory capital requirement. The regulatory capital requirement for most payment firms is calculated using one of three methods — the fixed overheads requirement, the minimum capital requirement, or a method based on payment volumes — and the firm must use the highest of these.

During a wind-down, as the firm ceases to take on new business, its payment volumes will decline, which might mechanically reduce its regulatory capital requirement. However, the FCA expects firms not to rely on declining volume calculations to free up capital during wind-down — the wind-down capital should be maintained until client funds are fully returned and all regulated activities have ceased. Firms that have used wind-down triggers too late often find they cannot meet both regulatory capital requirements and wind-down costs simultaneously.

Governance and Board Sign-Off

The wind-down plan should be a board-level document, reviewed and approved by the board at least annually and following any material change to the business model. The review should be genuine, not ceremonial — board minutes should reflect active discussion of trigger thresholds, capital adequacy, and changes to operational dependencies. Where an internal audit function exists, the wind-down plan should be within its review scope. The FCA will ask to see evidence of board engagement with the plan during supervisory reviews.

Common Deficiencies

FCA examination of wind-down plans at smaller payment firms consistently identifies the same weaknesses: wind-down capital calculations that exclude professional fees and redundancy costs; trigger frameworks that rely solely on capital ratios and miss operational triggers; plans that do not address third-party contract termination risk; and plans that have not been updated following material changes to the business. A plan drafted at authorisation and never reviewed is worse than no plan — it creates false assurance and will not withstand scrutiny.