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Trading Activity Wind-Down (TWD)

The critical last 18 months of TWD implementation

Instead of seeing TWD as another regulatory hurdle to overcome, firms should view the PRA’s TWD expectations as a catalyst and opportunity to drive change end-to-end. These expectations provide the toolkit for senior management to better understand their trading portfolios, underlying risks, financial and operational ramifications associated with their portfolios.

Trading Activity Wind-Down (TWD) is a regulatory priority, where the PRA expects firms that may affect financial stability of the UK to develop and demonstrate capabilities that will allow them to execute full or partial wind-down of trading activities in an orderly fashion by Q1 2025. Firms are also expected to develop or enhance their existing playbooks and highlight current implementation plans including planned testing and simulation exercises. The TWD Option which entails set of actions taken to minimise adverse impact on capital and liquidity or limit actions on financial stability when winding down their trading activities, has to be included as one of the recovery options in the recovery plan.

To develop the TWD Option, PRA expects firms to build core set of capabilities around ‘information provision and decision-making’ and ‘data refresh’ and assess impacts on financial and operational resources:

As we are approaching the last critical 18 months, we have presented our detailed view on the practical considerations of TWD implementation in this paper. It covers areas such as risk-based modelling of losses, scenario design, sensitivity analysis, solution design considerations etc.

We further explore the key challenges clients are facing, which include:

  • data management and granularity;
  • lack of dynamic solutions;
  • sub-optimal solutions in place for existing resolution capabilities;
  • methodologies and assumptions; and
  • integration into the recovery plan.

Lastly, our paper covers the areas where firms should be focussing their efforts on for the next 18 months to enhance their capabilities and also highlights the benefits that building these capabilities could bring.

Click here to download our old report on Solvent Wind-Down.

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