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March 17, 2020

Addressing Operational Risk: Implications for Regulators & FS Firms

We recently hosted a financial services resilience dinner alongside Special Advisor to the Treasury Committee, Gareth Lewis. The dinner was a great opportunity for CIOs and other leaders from across the financial services industry to come together to discuss their views on the current state of operational resilience, their challenges and how to approach them as well as implications for regulators and firms. It was clear that resilience is top of mind for CIOs and there’s a lot of uncertainty around the best way forward for the industry as a whole. Evolving customer expectations and the demand for banks to be always on, 24/7, have created a number of challenges. They are under pressure to innovate faster than ever before within a strict regulatory framework and getting the balance right between them is difficult. 


Different Sized Organizations Have Different Risk Profiles

The first theme discussed was the difference between the way big and small companies are treated by the regulator. It can be more difficult for smaller orgs or startups to meet regulatory requirements because big firms can do resilience better and easier and already have the mechanisms in place to deal with resilience issues. However, bigger banks are often held to a very high standard. There’s a tendency to regulate based on risk, so bigger banks are held to a higher standard because the consequences of failure would be much worse than for a smaller organization. The point was also raised that enforcement is a problem as some financial institutions are just too big for regulators to engage with. How should these issues be handled? What are your thoughts on the best way to regulate both large and small organizations? How can the industry come together to solve these challenges to ensure a more resilient financial system?


Helping Regulators Succeed

Another important area discussed was how banks can help regulators succeed. It’s a very tough journey for the regulators to adapt to making things safer. Financial institutions and banks need to respond to regulators papers and engage with them so they can work together to improve operational resilience as an industry. There is a belief that regulators don’t fully understand the ins and outs of these organizations and the full extent of the challenges they face in order to ensure compliance. However, with more transparency between the two parties and advances in regtech, this seems to be changing.


The Future of Resilience

Finally, the discussion turned to where the industry can go from here. Customers are putting pressure on banks and financial institutions to move faster because of their high expectations - they want their banks to be always on, and as a result financial services is demanding their IT move faster, which then causes resilience issues. Every generation has expectations and the younger generations are used to everything happening at speed, so financial institutions are trying to keep up with demand. If resilience can’t keep pace with the demand for innovation, this will lead to outages. Innovation is always ahead of regulation and we don’t want to kill innovation for the sake of regulation, so there needs to be a balance between good governance and freedom of innovation. 

Throughout the night there was a focus on the idea of banks and financial institutions coming together as a community to solve their common resilience challenges. Improving resilience practices is critical for the industry as a whole, because if one big bank makes a mistake regulators are likely to impose stricter rules on all of them. It’s possible that the future of resilience success will rely on banks, financial institutions and regulators all coming together to find a better way to remain resilient and protect themselves and their clients. 

In preparation for the dinner, Gareth Lewis produced a white paper to aid discussions titled Work Orchestration & Observability Become Critical for Operational Resilience in Financial Services. The paper discusses why the Financial Services industry is facing more IT failures. Download the paper below and let us know what you think the future holds for resilience on Twitter @gocutover. 


To find out how work orchestration and observability can help your firm improve its operational resilience, download our new white paper.

Chloe Lovatt
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