From Q1 2022, the industry will need to comply with new UK obligations designed to improve the financial sector's operational resilience. Given the sector's level of interconnectedness and interdependence, it is hard to conceive of a more important programme of work. The UK regulators' co-ordinated resilience consultations closed on 1 October 2020 and we expect finalised policy early next year.
The components of the new regulatory framework are intended to ensure that firms prevent, adapt, respond to, recover and learn from operational disruptions. COVID-19 has undoubtedly focused minds on the importance of resilience in the face of exceptional disruption events. It is likely that lessons learned from firms' experiences through the pandemic will be brought to bear as firms focus on strengthening resilience not only to pandemics but also to the universe of "severe but plausible" disruptions to which the sector is exposed.
While the regulators' operational resilience policy is designed to supplement, rather than replace, other elements of the regulatory framework – so firms should be able to leverage at least some elements of their existing processes, systems and controls – significant implementation challenges lie ahead for regulators and firms. Although the implementation timeframe may seem a long way off, firms should be thinking now about how they can adapt at enterprise level to the customer-centric services led approach that lies at the core of the framework.
Introducing the AG Operational Resilience Team
Addleshaw Goddard has partnered with UK Finance – the trade body that represents nearly 300 of the leading firms providing finance, banking, markets and payments service – to formulate the industry response to the UK regulators' consultation exercise. We are now supporting the International Banking Federation on the Basel Committee on Banking Supervision's consultation on operational resilience principles. Led by Financial Regulation Partner Steven Francis, we have established the AG Operational Resilience Team, a multi-disciplinary group focused on providing flexible support to clients, from targeted legal advice to large-scale project delivery on operational resilience change programmes.
The AG Operational Resilience Team is launching a new fortnightly blog series focusing on important components of the new framework, including the following:
- In the next post, Sara Evans – our financial regulation knowledge lead and the lead on our industry consultation work – will set out an overview of the implementation challenges firms are likely to face.
- Risk and Compliance Director Sarah Herbert will set out her insights on how firms can organise and develop their operational resilience change project.
- Commercial Partner and supplier risk control specialist Fiona Ghosh will outline how a considered approach to supplier management can work to mitigate a significant amount of operational risk.
- Financial Regulation Partner Lorna Finlayson will look at board engagement, the role of NEDs, and how to go about operationalising senior level oversight of firms' operational resilience programmes.
- Risk and Compliance Manager and SM&CR expert Nikesh Shah will consider how senior level responsibilities for operational resilience should be allocated, both during change and in BAU.
- Contentious Regulatory Partner Sarah Thomas will walk you through the common pitfalls that arise when implementing new internal controls, and how firms can avoid creating regulatory problems for themselves.
…and this is just the beginning. There will be lots more to cover in this most pervasive of topics and firms' priorities will shift in the course of the next few months.
We are very keen to speak to firms about the on-the-ground issues you are seeing and would like us to cover in future blogs. If you would like to discuss your operational resilience issues with us please contact Steven Francis, any of the AG Operational Resilience Team, or your usual AG contact.