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How New Regulation Will Improve Your Firm’s Operational Resiliency

Andy Reeves, Chief Risk Officer, EMEA, BNY Mellon I Pershing

Businesses have always looked to pre-empt those unexpected crises that could have the most severe impact on their operations. However, there is no denying that the events the world has witnessed over the past six months have been universally disruptive and challenging for businesses across all sectors. Yet while different businesses have managed to adapt in different ways and levels of success, there are a number of lessons the financial services industry can take to better prepare itself for future shocks of all sizes.

Having already developed initiatives to enhance operational resiliency, the events of 2020 have further highlighted the importance of effective operational resiliency to financial services regulators. This includes making sure companies have the resources to plan and respond to future crises, acknowledging that single-focus preparation must be replaced with planning that considers the multitude of impacts that severe, widespread disruption can have.

Even before the Covid-19 pandemic the Bank of England, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) viewed operational resilience as one of the key regulatory priorities in the coming years The consultation ‘CP19/32: Building operational resilience’, due to close in October of this year, detailed these proposals, which have now been catapulted into the spotlight as the impact of Covid-19 has spread across markets.

The new normal will require a new approach to resiliency planning

Traditional business continuity planning focused mainly on specific recovery tools and pre-defined events; alternative work recovery sites, capacity for remote working and the general ability to overcome short-term disruption to the business.

A major element of the recent regulatory proposals requires a significant shift in culture, in terms of planning for “when” crisis will happen as opposed to having a collection of tools to be used if something happens. Although firms can never plan for all possible eventualities, the events of 2020 have highlighted the benefit of planning responses to both common and more extreme events and the assumption that they will occur at some point.

Furthermore the proposals in CP19/32 will require firms to consider their response, and their tolerance to, disruption in the event that multiple events impact simultaneously. Understanding what these limits are, the so called “Impact Tolerances” are a key element of the proposed regulations.

Technology as a driver of future operational resilience

The crisis has also highlighted the importance of having robust technology frameworks in place to support not only in the continuation of business activity, but also in responding to the new, remote ways of working. During the peaks of the volatility earlier in the year, financial services companies were still expected to deliver the same high standard of service, the same efficiencies and the same security of transactions. Regardless of the event or its timing, these three principles are the bedrock for what clients expect; mastering a response to them was essential, and will be fundamental for future operational success when disruption to this extent strikes again, which it is likely to and we should all be planning for.

There are a number of positives for financial services firms however, and promising signs of how the industry will respond to future crises. Being forced to work remotely has accelerated the need for innovation of workspaces, digital capabilities, and client communication channels. Without the crisis we likely would not have seen this level of change for a number of years. For those who have done it effectively, the result has been the digitisation of workstreams and greater efficiencies across many business processes, while continuing to offer high client service levels.

Looking ahead, technology and regulation can work simultaneously to boost companies’ operational resilience and better prepare them for future shocks. With robust contingency plans in place, and the infrastructure to adapt effectively to new working environments, financial services companies will be in a stronger position to take future volatility in their stride.

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