What is Operational Resilience?

What is Operational Resilience?

The global economy has faced challenges recently, such as the COVID-19 pandemic, supply chain disruption, cyber incidents, technology failures, natural disasters and regulatory upheavals. Though these are specific concerns now, think of them as just iterations of challenges that have occurred over time, and they will continue to do so.

Operational resilience is the ability of an organization to withstand and recover from operational disruptions that affect its critical operations. This includes internal and external events that can impact an organization's ability to deliver products or services to its customers. 

Organizations must identify and prioritize their critical operations (critical or important business services) and ensure they have the necessary resources and plans to respond to disruptions to achieve operational resilience.

This includes developing business continuity plans that outline how operations will continue during a disruption and disaster recovery plans that detail how technology and infrastructure will be restored in the event of an outage.  In addition, there is a series of other plans to support the operational resilience effort.

Operational resilience also requires ongoing monitoring and (scenario) testing to ensure effective and up-to-date plans. Organizations must regularly review risk assessments and update plans to reflect changing threats (operational disruptions) and operational environments. This includes conducting regular drills and exercises to test plans' effectiveness and identify improvement areas.

Why the focus on financial institutions?

Operational resilience applies to all industries, but the financial services industry (FSI) regulators have taken the first initiatives to drive its industry.  Firstly, for the viability of its financial institutions and the stability of the broader financial system.  These have led to regulatory authorities publishing their operational resilience policy and would like the financial industry to start implementing these initiatives.

This underscores the significance of operational resilience as a supervisory focus and has motivated many regulators worldwide. Standard-setting bodies to issue guidance that aims to improve the operational resilience of financial institutions.

These are some of the definitions of Operational Resilience that the regulators publish:

• Basel Committee on Banking Supervision (BCBS)
  • Principles for operational resilience
  • "is the ability of a bank to deliver critical operations through disruption. This ability enables a bank to identify and protect itself from threats and potential failures, respond and adapt to, as well as recover and learn from disruptive events in order to minimise their impact on the delivery of critical operations through disruption."
  • https://www.bis.org/bcbs/publ/d516.htm

• Financial Conduct Authority (FCA)
  
  • PS21/3 Building operational resilience
  • "is the ability of firms, financial market infrastructures and the financial sector as a whole to prevent, adapt and respond to, recover and learn from operational disruption."
  • https://www.fca.org.uk/firms/operational-resilience
• Prudential Regulation Authority (PRA)
  
  • Operational Resilience Statement of Policy
  • is the organisation being "able to prevent disruption occurring to the extent practicable; adapt systems and processes to continue to provide services and functions in the event of an incident; return to normal running promptly when disruption is over; learn and evolve from both incidents and near misses."
  • https://www.bankofengland.co.uk/prudential-regulation/publication/2021/march/operational-resilience-sop
    
    
• Australian Prudential Regulation Authority
  • "is an organisation's ability to withstand and recover from shocks”
  • https://www.apra.gov.au/covid-19-a-real-world-test-of-operational-resilience

Finally, in BCM Institute's BCMPedia, Operational Resilience "is the capability to absorb a shock to operations to incremental change to the disruptive events and then rebound to a level of operations acceptable to management, employees and stakeholders."

There are several other regulatory requirements for Operational Resilience issued globally, and click the icon to find out more.

Do note that the content is being updated by the respective regulatory, and if it does not work, go to the main page of the URL and search for "Operational Resilience."

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