However, our approach document focuses on dealing with scenarios in which a firm is no longer viable and is compelled to wind down its business. We refer to these as wind-down scenarios and these are typically used to inform a firm’s wind-down plan. A firm will probably identify more than one wind-down scenario.
To do this, firms may want to consider what events would be likely to make it no longer viable, which is often referred to as reverse stress-testing. A firm is not viable if it no longer has adequate financial or non-financial resources to carry on its regulated activities. This could happen for a variety of reasons, including:
A firm may consider the following factors when formulating its wind-down scenarios:
business and operating models (business models show how a firm makes money, obtains funding and maintains healthy cash-flow while operating models look at the day-to-day operations of the business);
key revenue drivers, clients and functions in its operating model; and
vulnerable areas in its business and operating models.
Ideally, firms would consider various scenarios which may lead to winding down (including stressed scenarios) and associated potential recovery options. When a firm envisages that its regulated business is no longer viable (e.g. no recovery options remain available), it would start a wind-down process and our guide encourages firms to act swiftly and not wait until breaching threshold conditions to initiate a wind-down procedure.