Operational resilience, capital adequacy and business viability

Our clients, like many regulated business in the financial services sector are increasingly thinking about operational resilience.  To help such organisations, we have published a white paper. This sets out a summary of last year’s discussion paper (DP) on how the UK’s financial regulatory authorities expect the UK finance sector to enhance operational resilience. We highlight possible synergies with operational risk capital adequacy and threshold condition requirements, and provide a short summary of a recent high profile operational resilience failure to give context. Such high-profile events, and increasing cyber threats, have made the issue of ensuring operational resilience more acute.

In light of the DP and the regulators’ primary assumption that disruption will occur, Boards and senior management are taking significant steps to improve the operational resilience of their core business services. We believe adopting aspects of the DP will enable Boards and Senior management to:

• Focus appropriate resources on ensuring the operational resilience of key business services.
• Minimise harm to consumers and other market participants.
• Minimise the financial and non-financial losses from significant disruption.
• Satisfy regulator and stakeholder requirements for improved operational resilience.
• Inform strategy, linking operational resilience to capital adequacy and business viability/sustainability.

Furthermore, improving operational resilience may have a capital benefit. As we shall discuss, when setting impact tolerances careful consideration will need to be given to the associated impact on capital and assessments of the sustainability under threshold condition requirements.

Finally, in light of the FCA’s consumer focus we highlight the need to square the impact tolerances that can be borne by organisations under meaningful operational resilience events with those that cause harm to consumers, particularly the vulnerable.

Email us to request an electronic copy of the full report.