As we reported in our update on the FCA’s coronavirus advice hub, the Financial Conduct Authority (FCA) has drawn the attention of Firms to the joint proposals by the FCA, the Prudential Regulation Authority (PRA) and the Bank of England (BoE) for bolstering operational resilience as a useful resource during the current Coronavirus disruption.
In their January consultation paper the FCA, PRA and BoE put forward proposals for new rules to require Firms to take steps to ensure they were “operationally resilient” by being able to prevent, adapt, respond to, recover and learn from operational disruptions.
Operational disruptions and the unavailability of important business services have the potential to cause wide-reaching harm to consumers and market integrity, threaten the viability of firms and cause instability in the financial system.
The consultation paper focused on how the provision of such services could be maintained in the event of disruptions.
The January proposals would require firms to:
- identify their important business services that if disrupted could cause harm to consumers or market integrity
- identify and document the people, processes, technology, facilities and information that support the firm’s important business services
- set impact tolerances for each important business service (ie thresholds for maximum tolerable disruption)
- test their ability to remain within their impact tolerances through a range of severe but plausible disruption scenarios
- conduct lessons learned exercises to identify, prioritise and invest in their ability to respond and recover from disruptions as effectively as possible
- develop internal and external communications plans for when important business services are disrupted
- create a self-assessment document
How Firms should respond
In putting forward these proposals the UK regulators were hoping to ensure that Firms would be able to plan ahead and take steps to mitigate and reduce future harm to consumers and the wider financial system. Events have clearly overtaken the consultation. Firms grappling with day to day crisis management may be smiling wryly at the requirement to test their impact tolerences in “severe but plausible scenarios”.
However, Firms should, even during the fire-fighting, be keeping a record of where stresses have emerged in their operations and business models as well as of what has helped and hindered their maintenance of key services. One of the key planks of the proposals is to ensure that lessons are learned from disruptions. We can assume that, once final proposals are implemented, FCA will expect firms to have learned from their experiences over this recent period.
In addition, FCA has extended the deadline for consultation on its proposals until 1st October, so that it can ensure that the impacts of the current crisis can be considered and will welcome feedback of Firms’ experiences.
On April 6, 2020