Operational Resilience

Operational Resilience is one of the key themes for future regulatory developments. It is likely to become, next to prudential and conduct of business, the third important pillar of financial regulation for banks and other important financial services firms.

In many ways, many of the themes and concerns underlying the operational resilience discussion are not new. Firms are subject to ever more sophisticated risk management, outsourcing and governance requirements. Indeed, banks have been required to have financial resources for operational risk for some time now. But Operational Risk and Operational Resilience are not the same.

The Basel Committee defines operational risk in Basel II and Basel III as: "The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes strategic and reputational risk. " So it's about potential failures and quantifying their impact on the bank if they come to pass.

By contrast, Operational Resilience is about accepting that things will go wrong and working out how to recover from disruption. It's a different mindset. Operational resilience does not just focus on what can happen to the firm, but also the wider financial services ecosystem - counterparties, service providers, clients and customers. Low resilience can impact the financial stability of the whole market.

"Operational resilience refers to the ability of firms, FMIs and the sector as a whole to prevent, respond to, recover and learn from operational disruptions" - The UK's Prudential Regulatory Authority.

We’re established sector specialists with integrated offices around the world. As such we have an eye on every jurisdiction and understand regulatory direction on operational resilience. Find out more about how we can help you by getting in touch with a key contact below.