[OR] [BSP] Operational Resilience Framework for BSFIs: A Comprehensive Overview

Operational resilience has become a critical focus for financial institutions globally, ensuring.

This article provides a comprehensive breakdown of the critical elements and governance structure that Bank Supervised Financial Institutions (BSFIs) must establish to achieve operational resilience, as outlined in the regulatory framework.

Governance Structure

Operational resilience governance begins with the Board of Directors (BoD) overseeing and approving the framework.

This framework ensures that the institution can identify, respond to, recover from, and learn from operational disruptions.

The framework must align with the BSFI’s overall risk management and governance system, integrating with operational risk, business continuity, outsourcing, and cybersecurity risk management.

Key roles include

• BoD: Ensures that operational resilience aligns with business strategies and continuously assesses the institution’s ability to remain operationally resilient through disruptions.
  
  
• Senior Management: Implements the framework, allocates resources, and reports resilience capabilities to the BoD.
  
  
• Three Lines of Defense:

1. • First Line: Identifies resources needed for critical operations and aligns them with disruption tolerance.

• • Second Line: Assesses risks, ensuring controls remain effective.

• • Third Line: Audits and challenges the effectiveness of operational resilience efforts.

Vital Elements of Operational Resilience

Determining Critical Operations

Critical operations are those whose disruption could significantly impact the BSFI’s viability, customers, or the financial system.

The identification process must be comprehensive, covering all activities needed to deliver the critical service.

The Board must approve the identified critical operations.

Setting Tolerance for Disruption

Tolerance for disruption is the maximum level of acceptable disruption to critical operations.

This is measured using quantitative and qualitative metrics, such as the time-based recovery limits and the number of affected customers or transactions.

Testing this tolerance against severe but plausible scenarios ensures its robustness.

Defining Severe but Plausible Scenarios

BSFIs must identify potentially disruptive events, such as natural disasters or cyberattacks, which could threaten critical operations.

Scenario planning should be rooted in the institution’s risk profile and operating environment.

Mapping Interconnections and Dependencies

End-to-end mapping of the critical operations' delivery processes is essential.

This includes identifying critical internal and external resources, such as third-party service providers and understanding the interdependencies.

Such mapping helps pinpoint vulnerabilities and informs scenario planning and risk management.

Planning and Managing Risks to Critical Operations

Effective risk management involves leveraging frameworks such as operational risk management and business continuity planning.

BSFIs must continuously assess internal and external threats, manage vulnerabilities, and ensure adequate controls.

This extends to evaluating third-party providers to ensure they align with resilience objectives.

Integrating Business Continuity Management (BCM)

The BCM should be tightly integrated into the operational resilience framework.

It includes strategies for business impact analysis, recovery planning, and regular resilience testing against severe but plausible scenarios.

Periodic testing must involve key personnel and focus on increasing awareness and readiness.

Responding to and Recovering from Disruptions

The incident response plan is crucial for managing disruptions and ensuring critical operations continue despite setbacks. It should cover the entire disruption lifecycle, identifying critical roles and recovery options. A well-structured communication plan is also vital for timely information flow during disruptions.

Review and Refinement

Operational resilience is a dynamic process. BSFIs must regularly review their frameworks, especially after experiencing disruptions.

A thorough review includes examining the root cause of disruptions, the adequacy of controls, and whether the tolerance for disruption was breached.

Continuous refinement ensures that the framework remains effective and aligned with the institution’s evolving risk environment.

Summing Up...

Operational resilience is no longer a peripheral concern but a core component of risk management for BSFIs.

By integrating governance oversight, identifying critical operations, setting precise disruption tolerances, and preparing for plausible scenarios,

BSFIs can enhance their resilience and ensure the continuity of their critical services. Continuous review and adaptation are essential to keeping the framework robust, proactive, and responsive to emerging threats.

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.