In an increasingly interconnected and rapidly changing financial environment, the ability to anticipate, withstand, recover and evolve from operational disruptions is more important than ever. It is here that “Financial Services Operational Resilience” (FSOR) or simply “Financial Services Operational Resilience,” comes into focus. These disruptions can stem from a variety of sources, such as technology failures, cyber incidents, or even severe weather events.
Financial Services Operational Resilience refers to the ability of financial organizations to persistently deliver crucial operations through disruption. It is embedded in the risk management practices which underpin the whole financial system. It compels the industry to focus not only on preventing incidents but also managing the response and recovery, and refining processes based on learnings.
Relevance of Financial Services Operational Resilience in the Contemporary World:
The recent global events, like the Covid-19 pandemic, have stress tested the resilience of financial services firms around the world. Perhaps now more than ever, operational resilience is a boardroom priority and a strategic imperative. It’s a massive shift from merely a regulatory compliance requirement or a purely operational concern.
Initially, operational resilience was more about continuity planning and disaster recovery. However, the focus is shifting towards enabling the continuous delivery of essential financial services. The ongoing digital transformation, proliferating cyber-attacks, and evolving regulatory perspectives are urging financial firms to ensure greater resilience.
Key Elements of Financial Services Operational Resilience:
Financial services firms that can confront disruption head-on typically share a few key characteristics:
1. Robust Governance: Strong governance procedures are fundamental to operational resilience. Management should have explicit oversight and supervisory role in driving resilience across the organization.
2. Reliable Technology Systems: As more financial services move online, the ability to maintain uninterrupted technology services is pivotal. Regular system upgrades, vulnerability assessment, penetration testing, and routinized backups are a few essential steps.
3. Crisis Management: Management must have a clear and well-drilled plan in place to navigate a crisis like a cyber attack or a system failure. Staff should know their responsibilities, and there should be a clear chain of communication for decision-making.
4. Employee Training and Culture: Every employee plays a role in maintaining resilience. Regular training, heightened awareness, and embedding a culture of risk mindfulness is crucial.
How to Build Financial Services Operational Resilience:
Building operational resilience is a journey that implicates many aspects of an organization’s operations. It begins with identifying the critical business functions and supporting infrastructure. Then it is about formulating and implementing overarching policies, testing processes, and conducting regular reviews and optimization.
A few steps can be useful. Firstly, invest in technology, process, and infrastructure that will safeguard your business continuity. A dual-site strategy, where all critical business functions are duplicated at a separate location, can be adopted. Embrace cloud technology and adopt a cybersecurity strategy.
Next, conduct a rigorous assessment of your supply chain. Are there any vulnerabilities? Invest in supply chain resilience as a part of your overall strategy.
Finally, continually train your staff. The human element is a common source of error and vulnerability, and continuous training can bring about a culture change.
The Regulatory Landscape:
Regulators worldwide are now focusing on operational resilience. The UK’s PRA and FCA have been trailblazers, introducing the concept of ‘important business services.’ They’ve set out parameters for setting impact tolerances for each crucial service. The European Banking Authority has started a public consultation on proposed Guidelines on operational resilience.
Closing Thoughts:
While the journey towards Financial Services Operational Resilience is challenging, the cost of failure is too high to ignore. Financial services firms can neither afford to remain stuck in a continual loop of repairing crises nor can they lose their customers’ trust through sustained unavailability of services. The journey thus is not just mandatory but valuable. It will potentially weed out operational inefficiencies, offer an opportunity for differentiation, and build greater customer trust. In essence, operational resilience is a powerful amalgamation of defense and competitive strategy.