[OR] [BSP] Key Definitions in Operational Resilience: Ensuring Stability Amid Disruption

Definition of Term

The Bangko Sentral ng Pilipinas (BSP) guidelines on operational resilience provide a framework for BSFIs (BSP-supervised financial institutions) to ensure the continued delivery of critical operations despite disruptions.

This section outlines key terms essential for understanding and implementing the guidelines effectively.

Operational Resilience

Operational resilience (OR) refers to a BSFI's ability to maintain critical operations in the face of significant disruptions that could impact its viability or role within the financial system.

This encompasses a comprehensive approach that includes identifying potential risks, planning for disruptions, and swiftly restoring operations. The goal is to minimise the impact of disruptive events and ensure that critical operations can continue even during crises.

Critical Operations

Critical operations include functions, services, and processes whose disruption could materially harm customers or compromise the BSFI’s viability. Essential assets like personnel, technology, information, and facilities support these operations.

Whether an operation is "critical" depends on the BSFI's nature and role in the financial system. Examples include IT systems, clearing and settlement processes, and outsourced services vital for delivering these critical functions.

Each BSFI must set its tolerance for disruption at the critical operations level.

Critical Functions

Critical functions are those services provided to third parties, including customers, that are essential for the BSFI’s viability or the broader economy's functioning.

The failure of these functions could disrupt vital services such as payments, withdrawals, custody, lending, and deposit-taking.

Given the BSFI’s systemic importance, market share, or complexity, these functions are crucial in maintaining financial stability.

Tolerance for Disruption

Tolerance for disruption is the maximum level of disruption a BSFI can accept before it begins to harm customers, compromise market integrity, or threaten financial stability.

This tolerance level must account for a range of e the threshold at which disruptions to critical operations would cause material harm.

Material Entities

Material entities refer to a bank’s subsidiaries and affiliates representing a significant portion of the parent bank’s balance sheet or business activities.

These entities must be considered when developing an operational resilience framework, as their failure could significantly affect the overall organisation.

These definitions are crucial for financial institutions to establish clear, actionable strategies for operational resilience. They ensure they can withstand and recover from disruptions while serving their essential economic roles.

Summing Up...

The BSP's operational resilience guidelines offer a vital framework for BSP-supervised financial institutions (BSFIs) to ensure the continuity of essential services during disruptions. Understanding key terms such as operational resilience, critical operations, and critical functions is crucial for effectively implementing these guidelines.

Operational resilience is a BSFI's capacity to maintain essential operations facing significant challenges, including risk identification, disruption planning, and swift service restoration.

Critical operations encompass the functions and processes essential for a BSFI's viability and customer service. These operations must be identified and prioritized, as their disruption could have far-reaching consequences for the institution and the financial system.

Moreover, critical functions refer to the services provided to customers essential for the broader economy's stability, highlighting the interconnected nature of financial services.

Key terms like "tolerance for disruption" and "material entities" further inform BSFIs' operational resilience strategies. Tolerance for disruption sets the limits of acceptable operational interruptions, while material entities underscore the significance of including subsidiaries and affiliates in resilience planning.

These definitions provide a foundational understanding for BSFIs to develop effective strategies that enhance their resilience. This ensures they can respond to and recover from disruptions while continuing to deliver critical economic functions.

If you are looking for additional operational resilience definitions, the BCM Institute's online dictionary, BCMPedia, has them.

More Information About Blended Learning OR-5000 [OR-5] or OR-300 [OR-3]

To learn more about the course and schedule, click the buttons below for the OR-3 Blended Learning OR-300 Operational Resilience Implementer course and the OR-5 Blended Learning OR-5000 Operational Resilience Expert Implementer course.