[MTE] [Sep 2024] [P2] Implementation of Operational Resilience: Global Pains and Learnings [Part 2]

Implementation of Operational Resilience Global Pains and Learnings

[Part 2]

Tailoring Operational Resilience for Global Financial Institutions

Introduction

Implementing operational resilience across a global financial institution requires a nuanced approach that considers the unique characteristics of each business unit and operating environment.

This article explores the factors differentiating operational resilience frameworks for wholesale and retail banking entities.

Organisational Size and Scope

Wholesale Banking. Smaller organisational size often leads to a narrower focus on critical business services (CBS).
Retail Banking. Larger organisations with a broader range of products and services require a more extensive assessment of CBS.

Outsourcing Arrangements

Wholesale Banking. Extensive outsourcing arrangements can introduce additional risks and complexities.
Retail Banking. Regulatory pressures may limit outsourcing options, necessitating internal capabilities.

Scope of Operational Resilience

Wholesale Banking. Focuses on direct and indirect support services directly impacting the core business.
Retail Banking. Emphasises technology elements that underpin critical business services, ensuring compliance with regulatory requirements.

Definition of Critical Business Services

Wholesale Banking. CBS services affect the bank's safety, soundness, customer base, and relationships with other financial institutions.
Retail Banking. Focuses on services that materially impair compliance with regulatory obligations.

Case Study: Country A vs. Country B

Country A (Wholesale Banking). Identified 5 CBS, focusing on outsourcing and direct support services.
Country B (Retail Banking). Identified 35 CBS, emphasising technology elements and compliance with regulatory requirements.

Conclusion

The factors that shape operational resilience frameworks for global financial institutions vary significantly between wholesale and retail banking.

By understanding these differences, organisations can tailor their approaches to ensure effective risk management and compliance with regulatory expectations.

Building a Resilient Foundation: A Unified Approach to Operational Resilience

The global financial landscape necessitates a robust operational resilience framework. While regulations vary across jurisdictions, a common thread exists. This article explores our solution: a standardised approach that leverages regulatory coherence while addressing regional specificities.

End-to-End Mapping: The Cornerstone

Mapping Critical Processes. It is crucial to comprehensively map critical business services end-to-end, which identifies dependencies and potential disruption points.

Understanding Interdependencies. Analysing dependencies helps anticipate the cascading effects of disruptions on interconnected services.

Defining Impact Tolerances: Measuring Disruption

KPIs and Client Impact. Define impact tolerances through Key Performance Indicators (KPIs) like client impact, transaction delays, and Net Promoter Scores (NPS).
Client Focus. Set tolerable levels for client impact. This includes metrics like transaction delays and acceptable drops in NPS, indicating customer dissatisfaction.

Investment in Solutions: Closing the Gap

Testing and Gap Identification. Testing reveals operational deficiencies. Resources should be allocated to address these gaps and enhance resilience.
Investing in Resilience. Operational resilience requires investment. Prioritise resources to bridge identified weaknesses in critical services.

Respecting the Regulatory Landscape

Leveraging Commonalities. Extract and utilise the core principles from global regulations to build a unified operational resilience framework.
Addressing Regional Differences. Recognise and address local regulatory nuances in specific jurisdictions like Australia or Hong Kong.

Governance: The Backbone of Resilience

Clear Roles and Responsibilities. Establish a robust governance structure with clearly defined stakeholder roles and responsibilities.
Collaborative Approach. Operational resilience is a team sport. It necessitates collaboration between IT, sourcing, risk, and finance departments.

Conclusion

Financial institutions can create a robust and adaptable operational resilience framework by navigating the intricate web of global regulations, focusing on core principles, and building a collaborative governance structure.

This framework should be built upon a foundation of end-to-end mapping, impact tolerances, and targeted investments to close identified gaps. Financial institutions can safeguard their operations and maintain client trust in disruption by embracing a unified approach that respects regional specificities.

Remember, a resilient and healthy organisation prepares to organise today's dynamic world.

Lessons Learned: Building a Resilient Future

Introduction

Implementing operational resilience requires a comprehensive approach that addresses the unique challenges faced by global financial institutions. This article explores key lessons from our experience building operational resilience, emphasising the importance of a holistic and proactive approach.

Operational Resilience as a Business Responsibility

Organisational Commitment. Operational resilience should be embedded in the entire organisation's culture, not isolated to a specialised department.
Shared Ownership. Everyone should understand their role in contributing to the organisation's resilience.

Strong Central Steering

Unified Direction. A centralised steering committee ensures consistency and alignment with regulatory requirements.
Clarity and Consistency. Clear guidelines and standards ensure everyone works towards the same goals.

Executive Involvement

Support and Oversight. The involvement of the management board or supervisory board demonstrates top-level commitment.
Informed Decision-Making. Executives can provide valuable insights and support for resilience initiatives.

Beyond Time-Based Metrics

Instead of measuring maximum outage times, focus on the impact on revenue, customer satisfaction, and other vital metrics.
Tailored Impact Tolerances. Define impact tolerances based on specific business needs and risk profiles.

Learning from Incidents

Proactive Approach. Use past incidents, both internal and external, to identify vulnerabilities and improve resilience.
Global Perspective. Consider the potential impact of disruptions in different regions and locations.

Building a Culture of Resilience

Continuous Learning. Operational resilience is an ongoing process that requires constant learning and improvement.
Customer Confidence. Ensure customers are confident in the bank's ability to handle disruptions.

Summing Up ...

Building a resilient organisation requires a holistic approach encompassing organisational culture, governance, and risk management. By learning from past experiences, embracing a proactive mindset, and focusing on the impact of disruptions, financial institutions can create a culture of resilience that benefits both the organisation and its customers.

If you have any questions, email the moderator, Dr Goh Moh Heng, with your comments.

Click the icon on the right for the additional questions asked by the participants. However, due to a shortage of time, Dr. Goh provides the answers.

Click the icon on the left to return to Part 1 of Veronika's presentation.