Operational Resilience- Regulators Approach

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What is Operational Resilience?

The operational resilience of financial institutions is fundamental to the objectives of both the FCA and the PRA and therefore this topic is high on the regulators’ agenda. In August 2017, the PRA’s letter to Version 4 Credit Unions discussed their focus on operational resilience. Since then a number of large version 5 and version 4 Credit Unions have had PRA operational resilience reviews. The PRA and FCA have also launched a joint discussion paper on the topic.

Operational resilience has been defined by the Bank of England as:

 “The ability of firms and the financial system as a whole to absorb and adapt to shocks, rather than contribute to them”

There are a number of areas to operational resilience including risk management, business continuity plans and cyber security.

Approach recommended by Regulators

The regulators’ issued a discussion paper on operational resilience in June 2018. It sets out how they expect firms to approach the topic. The regulators are promoting a focus on prioritising services as opposed to upgrading systems based on age, cost or other factors. They feel that an approach of identifying the key services and then focusing on the systems needed to maintain these systems will lead to more resilient operations. While a focus on key services is important, systems for meeting compliance and contractual requirements should also be prioritised.

As part of the process the Credit Union should be looking at the tolerance level for how long services could be down and then then looking at whether services could be restored within these limits.

The regulators have used the following diagram to set out their suggested approach:

The discussion paper covers the regulators approach in more detail and their expectation. We would therefore recommend that Credit Unions review the paper.

Further Information

The discussion paper is on our new Operational Resilience webpage. This page will summarise articles and links on the subject as well as setting out how we can help. This includes links to the discussion paper.