The FSAs Role in Promoting Resilience in the Financial Sector

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The FSAs Role in Promoting Resilience in the
Financial Sector
Operational Risk Reality Check

• 20 February 2007
• John Milne
• Head of BCM, FSA

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Tripartite Standing Committee

• Comprises
• HM Treasury link to wider government
• Bank of England payments system
• market
  liquidity
• FSA single financial
  regulator

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Priorities

• Promoting Resilience amongst key market
  participants
• Spreading improved BC practice.
• Enhancing international cooperation.
• Preparing for a pandemic.

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1. Promoting Resilience

• 2005 Resilience Benchmarking Project
• Key questions
• How resilient is the UK financial sector?
• How quickly can the sector recover from major
  operational disruption?
• Do firms plan and prepare effectively?
• Are there any concentrations or dependencies
  which could potentially be areas of
  vulnerability?
• What action is needed to improve the resilience
  of the sector?

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1. Promoting Resilience

• RBP Key Findings
• IT systems are highly resilient
• Need for more understanding of wider impact of
  major operational disruption
• Need for more recognition of dependencies
• Need for co-ordinated testing
• Need for better personnel management
• Heavy geographic concentration
• Appetite for sound practice guidance

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1. Promoting Resilience

• RBP follow-up actions
• Discussion Paper published in December 2005
• Feedback statement July 2006
• individual assessment and peer-group comparison
• Thematic project with line-side/RRT to raise
  concerns with individual RBP participants
• BCM issues embedded in Arrow II process
  (sub-sector risks)
• Training for line supervisors
• Thematic project to follow up on sector-wide
  issues (e.g. geographic concentration/telecoms
  issues)
• Re-benchmark RBP participants in late 2007

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1. Promoting Resilience

• Market-wide exercises (MWE)
• Objectives
• Annually to test the ability of the authorities
  and of key market participants to co-ordinate
  their response to a major operational disruption
• To reinforce participants understanding of role
  and priorities of authorities during a major
  operational disruption

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1. Promoting Resilience

• MWE Key Theme Interdependence
• Financial system is highly interconnected. All
  financial market participants are dependent on
  the ability of counterparties to make payments
  and settle transactions borrowers need lenders
  buyers need sellers.
• So business continuity planning cannot be
  effective in isolation
• Purpose of the exercises is to emphasise that
  interdependence and encourage firms to think
  outside their immediate environment.

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1. Promoting Resilience
MWE History

• June 2003
• Half-day desk-top walk through at CSFB
• 30 firms/100 people
• Terrorist attack scenario

• November 2004
• Half-day real-time role-play
• 40 firms/300 people
• Terrorist attack scenario

• November 2005
• Half-day real-time role play
• 65 firms/0ver 3000 people
• terrorist attack scenario

• Oct/Nov 2006
• Six-week lapsed time role play
• 70 firms/3500people
• Flu pandemic

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2. Spreading improved BC practice

• Main tripartite focus is on key market
  participants because of systemic risk
• But important to cascade lessons learned to wider
  regulated community

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2. Spreading improved BC practice

• FSA offers self-help toolkit comprising
• Cut-down (lite) version of main benchmarking
  questionnaire
• BCM Practice Guide describing standard and
  leading practice observed during RBP
• Purpose is to enable wider range of firms to
  self-assess and implement improvements
• No FSA oversight of results
• Modest access fee for Lite
• Email businesscontinuity.toolkit_at_fsa.gov.uk

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3. Enhancing International Cooperation

• Cross-border issues
• Interdependence is not just within financial
  markets but between them. What happens in one
  market-place has repercussions for the others.
  Thus planning for major disruption involves a
  strong cross-border element.
• FSAs ground-breaking work on benchmarking and
  testing has established it as the market leader
  in promoting financial sector resilience

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3. Enhancing International Cooperation

• FSA Cross-border work
• Joint Forum Working Group High Level Principles
  published in July 2006.
• IMF Regional Pandemic Seminars
• JFWG still in place as pandemic discussion forum
  with wider membership
• Other regulators involved in MWEs in range of
  roles
• FSF/Tripartite Workshop in November 2006.
• Advising wide range of other regulators who are
  interested in imitating our benchmarking and
  testing approach
• US/UK desktop exercise in 2007

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4. Preparing for a pandemic

• we may have not thought through with
  sufficient care the likely effects of a flu
  pandemic on the financial services industry.
• Callum McCarthy
• Mansion House speech
• 26 September 2006

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4. Preparing for a pandemic

• Measures already in place
• 2005 cross-FSA group to co-ordinate work on the
  macro economy, the financial sector, particular
  firms and on BC plans.
• 2005 cross-industry group to exchange
  information and promote consistency of approach
• Feb 2006 questionnaire to major firms on their
  pandemic plans
• Oct/Nov 2006 Market-wide pandemic exercise

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4. Preparing for a pandemic

• MWE Approach
• 70 participating organisations
• Partnership
• Own locations
• Website delivery
• MWE Key Components
• sixweek duration simulating 5 months
• increasing absence model
• Global attack rate
• economic indicators/ market prices

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4. Preparing for a pandemic

• MWE High Level findings
• Significant challenge to HR policies
• Does home-working work?
• Customer-facing activities
• Keeping the markets open
• Full report on www.fsc.gov.uk

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4. Preparing for a pandemic

• Follow-up to MWE
• Workshops for participants
• Meeting with CEOs
• Conference to discuss with wider audience
• Future exercises

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Promoting Resilience in the Financial Sector

• Questions?