Operational Resilience: Joining The Dots In The Age Of Covid-19

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TRENDS AND DRIVERS

Business processes and infrastructure have become more and more complex as well as more fragmented due to the increased use of third party providers as well as the increasingly connected and technology-driven operating environment. This raises concerns that such complex interdependencies increase the likelihood of a major disruptive event.

Since the last financial crisis in 2008, financial institutions have been forced by regulators to make substantial improvements to their risk management strategies, including the performance and testing of stress scenarios. Before Covid-19, while pandemics were considered, the stress testing was more focused on scenarios that the firm can control to some extent such as IT outages, third party providers outages, cyberattacks.

Several trends in the highly inter-connected global financial system have sharply increased the need for more mature and robust Operational Resilience practices and Covid-19 has pushed the boundaries to a situation that was unthinkable before 2020.

REGULATORY BACKGROUND

Operational Resilience is different from traditional business continuity and disaster recovery. Operational Resilience is about preventing operational incidents from impacting consumers, financial markets and the financial system as a whole.

Operational Resilience remains a top priority for the supervisory authorities in the UK. In December 2019, the FCA, the PRA and the Bank of England published their Joint Consultation Papers on Operational Resilience (CP19/32 & CP29/19). At EU level, there has been a bundle of regulations on operational risk, outsourcing, cloud outsourcing, internal governance, information and communication technology (ICT) and security, that overlap. One of the most recently published papers is the Consultative Document on ‘Principles for Operational Resilience’ issued by the Basel Committee on Banking Supervision in August 2020.

OPERATIONAL RESILIENCE INTEGRATED ETHOS

With the growing complexity in financial services, it is incumbent on each financial institution to take Operational Resilience seriously. Operational Resilience cannot be achieved overnight. Enhancing Operational Resilience is likely to be a multi-year effort for all firms.

This Operational Resilience Practical Guide focuses on the following aspects and provides a few handy tips that financial institutions may wish to consider before starting their Operational Resilience journey:

High level requirements from the PRA/BoE & FCA Consultation Papers on Operational Resilience
Broader perspective on Operational Resilience , different from operational risk
Expectations that the regulators have from the Board in playing a leading role
Benefits of establishing an effective Operational Resilience programme
Close inter-dependencies between Operational Resilience and Outsourcing

Further details in relation to Outsourcing and a pan-European outlook to outsourcing regulations are included in our Practical Guide published in March 2020, ‘Outsourcing: The Warning Bells Have Started to Ring’.

GET EXPERT ASSISTANCE

While completely unexpected and extremely challenging and disruptive, Covid-19 has given an opportunity to the industry to learn how to be operationally resilient. Firms should embrace the current situation to enhance continuously their Operational Resilience programmes, reassess their current operational processes and eco-system, and become better prepared for future disruptions.

COMBINING IT AND FINANCIAL SERVICES EXPERTISE

Reply is a recognised partner for a large number of G-SIBs, D-SIBs and other banks in the UK and in the Eurozone. Our specialists can help your organisation establish and maintain an embedded approach to Operational Resilience in compliance with regulatory expectations.

Click the tabs below for an overview of ‘assets’ that Reply has developed to assist UK and Eurozone based financial institutions.

To learn more, please download the full PDF Practical Guide for free and don’t hesitate to contact us for further questions.

BENCHMARKING

Benchmarking existing programmes against regulatory requirements, supervisory expectations and industry practices across peer firms.

STRATEGY AND FRAMEWORK DEVELOPMENT

Operational Resilience strategy development for the Board. Development of Operational Resilience policy and framework.

IDENTIFICATION AND TESTING

Important business services identification, set-up of impact tolerances, mapping.

Scenario testing, identification and remediation of vulnerabilities.

REMEDIATION PLANS

Assistance in developing and creating appropriate remediation plans following a supervisory inspection or audit.

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