Navigating FCA operational resilience framework: practical steps for compliance


INSIGHT
Published
Jul 5th '24
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In the fast-paced world of financial services, building a Financial Conduct Authority (FCA) operational resilience framework is no longer a luxury—it’s a necessity. The FCA has set stringent rules to ensure firms can withstand, adapt, and recover from operational disruptions. But what does this mean in practice? Let’s delve into how firms are navigating the maze of FCA operational resilience framework requirements with practical, real-world examples.

 

What is FCA operational resilience framework?

Operational resilience refers to a firm’s ability to prevent, respond to, recover, and learn from operational disruptions. The FCA’s framework mandates that financial firms identify their important business services, map dependencies, set impact tolerances, and conduct regular scenario testing. This isn’t just about ticking boxes; it’s about embedding resilience into the very fabric of an organisation.

 

Identifying important business services

  • Defining key services

The first step towards operational resilience is identifying the crucial services that, if disrupted, could have significant consequences for the firm, its customers, or the financial system. Firms often find this step challenging as it requires a deep understanding of their operations and value chain.

 

Practical example: a large retail bank conducted a comprehensive review of its services, identifying online banking, atm operations, and payment processing as critical. They involved cross-functional teams to ensure no vital service was overlooked.

 

  • Mapping dependencies

Once key services are identified, the next step is mapping all the dependencies that support these services, including people, processes, technology, and third-party suppliers.

 

Practical example: an insurance company created detailed maps of its claims processing service, identifying dependencies on it systems, customer service teams, and third-party assessors. This holistic view helped them pinpoint vulnerabilities and areas for improvement.

 

  • Setting impact tolerances

Determining tolerances
Impact tolerances define the maximum acceptable level of disruption for an important business service. Setting these tolerances involves balancing risk appetite with customer expectations and regulatory requirements.

 

Practical example: a wealth management firm set impact tolerances for their portfolio management service, determining that any disruption exceeding two hours would be unacceptable. They used historical incident data and customer feedback to inform their decision.

 

  • Conducting scenario testing

Real-world testing
Scenario testing is essential for validating a firm’s operational resilience. This involves simulating various disruption scenarios to assess the firm’s ability to maintain critical services within the set impact tolerances.

 

Practical example: a trading platform conducted a scenario test simulating a cyber-attack. They tested their incident response plan, communication protocols, and recovery procedures. The test revealed gaps in their response strategy, prompting improvements in their cyber resilience.

 

  • Building a resilient culture

Embedding resilience
Operational resilience isn’t just a set of processes; it’s a cultural shift. Firms must foster a culture where resilience is prioritised across all levels of the organisation.

 

Practical example: a challenger bank implemented regular resilience training for all employees, from senior executives to front-line staff. They also established a resilience committee to oversee ongoing initiatives and ensure alignment with regulatory expectations.

 

  • Leveraging technology

Tech solutions
Technology plays a crucial role in enhancing operational resilience. Firms are increasingly leveraging advanced tools and platforms to monitor, manage, and mitigate risks.

 

Practical example: a financial services firm adopted a cloud-based risk management platform to centralise their resilience efforts. This platform provided real-time monitoring of key services, automated incident reporting, and facilitated scenario testing.

 

  • Collaboration with third parties

Managing suppliers
Third-party relationships are integral to operational resilience. Firms must ensure their suppliers and partners are also resilient and can support the firm’s critical services during disruptions.

 

Practical example: a payments company conducted resilience assessments of its key suppliers, ensuring they had robust business continuity plans. They also included resilience requirements in their contracts, holding suppliers accountable for maintaining high standards.

 

  • Regular reviews and updates

Continuous improvement
Operational resilience is not a one-off task but an ongoing process. Regular reviews and updates are crucial to adapting to new threats and regulatory changes.

 

Practical example: a multinational bank established a quarterly review process to assess their operational resilience framework. They analysed incident data, conducted new scenario tests, and updated their resilience plans accordingly.

 

  • FAQs

Q: why is operational resilience important for financial firms?

Operational resilience ensures that firms can continue to provide critical services during disruptions, protecting customers, maintaining market stability, and complying with regulatory requirements.

 

Q: how do firms identify their important business services?

Firms typically conduct a thorough review of their operations, involving cross-functional teams to ensure all critical services are identified. They may also use customer impact assessments and historical data to inform their decisions.

 

Q: what is the role of technology in operational resilience?

Technology enhances operational resilience by providing tools for real-time monitoring, incident management, and scenario testing. Advanced platforms can centralise resilience efforts and improve response times during disruptions.

 

Q: how often should firms review their operational resilience framework?

Regular reviews are essential. Many firms opt for quarterly reviews, but the frequency may vary based on the firm’s size, complexity, and regulatory requirements. Continuous improvement is key to maintaining resilience.

 

Conclusion

FCA operational resilience isn’t just about compliance—it’s about ensuring your firm can thrive in the face of adversity. By identifying important business services, setting impact tolerances, conducting scenario testing, and fostering a resilient culture, firms can meet regulatory requirements and safeguard their operations. Practical examples from leading firms show that with the right approach, operational resilience is achievable and sustainable. So, don’t wait for the next disruption; start building your resilience today!

 

So, are you ready to embark on this journey? Let’s get your firm FCA compliant and poised for growth! Contact us to book your FCA compliance specialist discovery call, today!

 

Contact us if you need assistance in implementing, documenting or testing/auditing your Operational Resilience project.

 

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