Technological innovations of the last decades have caused a big headache for all the executives of the world’s biggest banks. This is rather unquestionable, that tech development has been one of the biggest disruptors on the market. So have the banks decided to collaborate with their biggest threat? Or maybe they just do not want to be left behind? J.P. Morgan seems to be the prime example of that, as they managed to scrape $11 billion and invest it into the number of technologies.
Of course, it would be hard for the banks, as the institutions with often hundreds of thousands of customers, to do everything by themselves. That is why (and it really is not anything peculiar), they outsource some work to smaller companies. The banks are happy, as part of their job is being done, and the companies are happy, as they get to cooperate with big institutions. One of those smaller companies is Fusion Risk Management.
To go forward with the story, we’ll need to clarify, what ‘operational resilience’ is. For some, this may sound like some post-2008 made-up concept, but in reality, it is a really important element of planning the business. It also allows the companies to operate during the “troubled” times.
The Bank of England’s definition of it claims that it’s the ability of the companies and systems to adapt to different shocks, rather than being part of them. This simply extends beyond the continuity of a business as well as recovery from the disaster. The firms need to have specific plans to be able to deliver their services, and the reason for the disruption is irrelevant in this case.
This approach was further defined in their FSS (Financial Stability Strategy). They basically claimed that if unchecked, the system can develop, but also become vulnerable to disruptions and shocks. When the borrowers become much in debt, the shocks for the whole financial system could be even amplified. So the responsibility of authorities is to ensure the resilience of the system to any potential risks. With rigorous rules, they could be able to make sure the system adapts to any trouble when facing shocks. Therefore, they should be able to support the economy, when/if the disruptions occur.
Goldman Sachs and Citi have recently shown us, what are the possible outcomes of not having done enough to strengthen resilience. Paul Ybarra, Fusion’s Chief Revenue Officer, discussed the challenges around the Operational Resilience concept with Disruption Banking’s Benjamin Jenei.
The operational resilience
Ybarra explained his company’s approach towards operational resilience. He actually pointed out six pillars that, according to him, are key to understanding it and ensuring its undisturbed and efficient use. The six pillars are:
- business continuity;
- crisis and incident management;
- third party vendor management;
- operational risk;
- compliance and audit management;
- disaster recovery.
These are responsible for anticipating the worst scenarios that could happen for the company’s technology, the staff, and all the processes and businesses within the company. Whatever is the possible disruptor, or could threaten the continuity of business, should be looked at and worked out. The main rule of operational resilience planning is, in fact, breaking it down into major pillars.
According to Ybarra, operational resilience isn’t so widely spoken about, because of the lack of firms’ imagination. Many companies have unsuccessfully anticipated (or even failed completely to do so) the pandemic outlook and consequences. Paul Ybarra notices, that predicting the worst-case scenario, and preparing for it, is not a very common practice in companies nowadays. This is where technology comes in for the rescue.
During the big pandemic shock, we could clearly see which companies had anything planned in case the worst happened (like a global crisis for example), and which had not. To read the already-mentioned Benjamin Jenei’s Disruption Banking piece, visit the following link, where the author gave a comprehensive analysis of the topic: https://disruptionbanking.com/2021/04/19/why-are-banks-spending-so-much-on-tech/.