Operational resilience analytics: Bouncing back from disruption

30 April 2019

by Matthew Gela Associate, Data & Analytics in Banking & Capital Markets

by Duncan Scott Director, Banking and Capital Markets Regulatory

Less than a year since the Bank of England, PRA and FCA Discussion Paper on Operational Resilience was issued many firms and financial market infrastructures (FMIs) have made progress in strengthening their operational resilience arrangements. A comprehensive and good practice guide can further support in this endeavour. But many may also find it useful to explore the benefits of developing analytics capability in this area. Analytics could be deployed to anticipate the potential impact of disruptive incidents and evaluate recovery options, in order to maintain continuity of business services.

Because of several issues of service outages across the financial services industry caused by operational disruption, the regulators expect increased focus on identifying and planning for recovery on the assumption that systems and processes which support business services will be disrupted. Avoiding disruption to a particular system or process supporting a business service can be viewed as a contributing factor to operational resilience. But ultimately the business service itself needs to be resilient.

In light of this, firms and FMIs must quantify and test the impact of severe but plausible scenarios on the systems and processes that support delivery of a business service in order to identify vulnerabilities and take optimal recovery action to continue to provide the service. How can firms and FMIs do this?

Let’s look at the example of payments processing. If the servers supporting Straight Through Processing (STP) were running on reduced capacity, this could slow down submission of payment instructions. A firm could use its infrastructure and historical transactions data to model and predict the cascading impact of such an issue on the overall process, including submission of clearing instructions by any applicable cut-off points. Through modelling the overall process, the firm will be able to understand how severely each stage of the process would be impacted, including backlogs that may be created, and what (if any) substitution or workaround options may be available to maintain continuity of the service. Additionally, the load impact on the resources used by any workaround could be measured, as well as how the workaround will help to minimise the impact on critical activities.

As a result, the robustness of the recovery options available to maintain continuity of the business service could be tested. This may provide a demonstrable and efficient way to respond to a disruptive incident, as well as to prioritise and take investment decisions in areas of vulnerability identified by the testing.

The regulators continue to reiterate and develop their supervisory approach towards operational resilience. The Bank of England and PRA have stressed that operational resilience is more important than ever as more consumers are accessing business services digitally, operational failures become visible quicker with social media and the increase of cyber-attacks. The FCA has taken a strong stance against firms failing to protect consumers from foreseeable risks. In addition, MPs in the Treasury Select Committee have launched an inquiry into the ability of financial services companies to prevent and respond to IT failures.

With rapid developments in the availability of lower cost technologies, including interactive dashboards, analytics capability in this area is far more accessible than before. Such technologies can be used to dynamically bring together disparate datasets, such as on the performance and capacity of systems, premises and people. This could provide the tools necessary to model and measure the impact of disruptive incidents and workarounds. Therefore, firms and FMIs not only have the opportunity to meet regulatory and public expectations, but also take a lead role in demonstrating an innovative and robust approach towards operational resilience.

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Related reading:

by Matthew Gela Associate, Data & Analytics in Banking & Capital Markets

by Duncan Scott Director, Banking and Capital Markets Regulatory