[MTE] [Mar 2025] [P1&P2] Decoding RBI's Operational Resilience Framework: Approaches and Challenges

 Part 1: The Global Regulatory Landscape of Operational Resilience: A Critical Imperative

In today’s rapidly evolving business environment, operational resilience is no longer just a buzzword but a fundamental pillar of sustainable business strategy. Organisations worldwide must anticipate, prepare for, respond to, and recover from disruptions to maintain stability and continuity.

Global regulatory scrutiny has intensified with increased digitisation, growing third-party dependencies, and the introduction of new financial products. Financial institutions now face heightened oversight to ensure they can withstand cyber threats, technological failures, and operational disruptions.

The Rising Threat Landscape: A Call for Action

From January to October 2023, a staggering 1.3 million cyberattacks were recorded against Indian financial institutions, equating to approximately 4,400 daily attacks (as per CERT-In). This alarming statistic underscores the need for robust operational resilience frameworks.

Additionally, third-party risk management has become a focal point for regulators. With financial institutions increasingly outsourcing critical functions, the risk of disruptions has escalated. The Reserve Bank of India (RBI) has revoked the licenses of several financial institutions for non-compliance with outsourcing guidelines and fair practice codes, emphasising the importance of regulatory adherence in service delivery.

Furthermore, the rapid launch of new financial products and evolving digital ecosystems have introduced additional risks. Regulators impose severe penalties on institutions that deviate from compliance, leading to reputational damage and operational disruptions.

Global Regulatory Trends in Operational Resilience

While regulations may differ across jurisdictions, there are common global themes in operational resilience frameworks:

• Continuity of Services – Ensuring financial institutions can sustain critical operations even during disruptions.
  
  
• Adaptability and Recovery – Institutions must be agile in responding to evolving threats and restoring services swiftly.
  
  
• System Stability – Strengthening financial and technological infrastructures to withstand shocks.
  
  
• Collaboration – Regulatory bodies emphasize industry-wide coordination to enhance resilience.
  
  
• Technology and Innovation – Leveraging cutting-edge solutions to mitigate risks and improve response capabilities.

Key Global Regulations on Operational Resilience

• U.S. Securities and Exchange Commission (SEC): This agency safeguards financial markets by focusing on cybersecurity risk management and third-party risk governance.
  
  
• Digital Operational Resilience Act (DORA)—European Union: This act strengthens digital resilience across financial entities, emphasising third-party risk management and IT security.
  
  
• Basel Committee on Banking Supervision (BCBS) Guidelines: Establishes principles for preventing and recovering from operational disruptions in banking institutions.
  
  
• Reserve Bank of India (RBI) Guidelines: Financial entities must be prepared, adaptable, and responsive to operational disruptions. To protect customers, they must strictly enforce outsourcing risk management and fair practice codes.

Summing Up for Part 1 ...

Operational resilience is no longer optional—it is a regulatory necessity and a strategic advantage. With rising cyber threats, third-party risks, and technological disruptions, global regulators push financial institutions to adopt stringent risk management and continuity planning measures.

As financial ecosystems evolve, businesses must proactively enhance their resilience frameworks to comply with regulations, safeguard critical operations, and maintain trust in the economic system. Those who fail to adapt risk severe financial and reputational consequences in an era of heightened regulatory scrutiny.

Dr Goh Moh Heng, President of BCM Institute, summarises this webinar. If you have any questions, please speak to the author.

Part 2: Understanding the RBI Guidance Note on Operational Resilience: Purpose and Key Features

The Reserve Bank of India (RBI) Guidance Note on Operational Resilience, implemented on April 30, 2024, is a significant regulatory development aimed at strengthening the operational resilience of Indian financial institutions. Unlike many other regulations, RBI has not set a specific timeline for compliance, allowing institutions to integrate these principles into their operational frameworks gradually.

However, building operational resilience is a complex, long-term process that requires strategic planning, extensive groundwork, and continuous adaptation. Let’s explore this guidance note's purpose, key features, and implications for Indian financial institutions.

Purpose of the RBI Guidance Note on Operational Resilience

At its core, the primary objective of this guidance note is to enhance operational resilience by ensuring the delivery of critical operations even during disruptive events. RBI defines critical operations as:

“Critical functions, activities, processes, and their supporting assets, the disruption of which will be material to the continuity operations of financial institutions.”

By focusing on continuity of critical operations, the RBI aims to safeguard the financial system from:

• Cyber threats and technology failures
• Third-party dependencies and outsourcing risks
• Natural disasters and geopolitical uncertainties
• Operational disruptions due to internal or external shocks

This regulation aligns with the Basel Committee on Banking Supervision (BCBS) Principles for Operational Resilience (2021), reinforcing global financial sector risk management practices.

Key Features of the RBI Guidance Note

The framework is structured around three core pillars and 17 principles, ensuring a comprehensive approach to operational resilience.

Prepare and Protect

Institutions must anticipate potential risks and implement protective measures to minimise disruptions. This includes:

• Identifying critical operations and dependencies
• Implementing robust risk management frameworks
• Strengthening cybersecurity and IT resilience
• Enhancing third-party risk management

Build Resilience

Organisations must develop capabilities to withstand, respond to, and recover from disruptions. This involves:

• Establishing business continuity and disaster recovery plans
• Testing resilience through stress scenarios and simulations
•  Ensuring redundancy in critical systems and processes

Learn and Adapt

Continuous improvement is essential for operational resilience. Institutions must:

• Analyse past disruptions and lessons learned
• Evolve strategies based on emerging threats
• Foster a resilience-focused culture across all levels of the organisation

Who Must Comply with the RBI Guidance Note?

The regulation applies to a wide range of financial institutions, including:

• Commercial Banks
• Cooperative Banks
• Non-Banking Financial Companies (NBFCs)
• All India Financial Institutions (AIFIs)

These institutions must assess their existing operational resilience frameworks and align them with the RBI’s guidelines to ensure compliance and long-term sustainability.

Summing Up for Part 2 ...

While the lack of a fixed timeline allows institutions flexibility, it also presents a challenge—operational resilience cannot be achieved overnight. Given the complexity of digital transformation, third-party risks, and emerging financial products, financial institutions must take proactive steps toward compliance.

By adopting a structured approach based on the three pillars of resilience, Indian financial institutions can meet regulatory expectations and enhance their ability to withstand future disruptions, ultimately ensuring a stronger and more stable financial ecosystem.

Dr Goh Moh Heng, President of BCM Institute, summarises this webinar. If you have any questions, please speak to the author.