Lyndon Nelson, Deputy CEO and Executive Director, Regulatory Operations and Supervisory Risk Specialists, spoke in London about the ongoing work to ensure operational resilience in the financial services sector in UK, particularly in the face of increasing cyber threats. BoE expects to publish a discussion paper on operational resilience, which would contain recommendations for both the industry and regulators.
In his speech, Mr. Nelson highlights the importance of a strong collaboration when it comes to building resilience in the financial sector. He mentioned that, last year, the UK authorities had issued a discussion paper, setting out an ambitious and innovative outcome-based approach to enhancing operational resilience of the UK finance sector. At a policy level, the paper set out that firms should assume that operational disruption would occur and plan accordingly. The paper has received very positive feedback from industry and globally, particularly its outcome-based approach and the concept of impact tolerance but it also raised issues that require clarification, most notably the family tree of operational risk, operational resilience, operational continuity in resolution, and a number of other terms. The UK authorities will respond to this and other questions in the Autumn. He also mentioned that the discussion paper is a joint document from different authorities such as the Financial Policy Committee, FCA, BoE's Financial Market Infrastructure supervisors, and PRA. This reflects how highly prized BoE considers collaboration to be in this area.
Next, he offered an overview of the activities of the Cross-Market Operational Resilience Group (CMORG), which was historically chaired exclusively by BoE, but has now been re-shaped with the introduction of a co-chair structure—"I now co-chair with UK Finance." said Mr. Nelson. The most visible of CMORG’s activities is to support a regular cross-sector operational exercise program, which helps industry and authorities alike understand our operational capabilities when things go wrong and build capabilities to address these before they do. In addressing the threat from Cyber, BoE welcomes the announcement by UK Finance of the formation of the Financial Sector Cyber Collaboration Center, which promises to bring a step change to industry collaboration and, therefore, defensive capabilities on cyber. This is a great example of where firms can address risks that are unmanageable by firms individually by tackling the problem for the broader public good. There is still room for industry to go further. The last sector exercise identified a number of areas that lend themselves to this approach and a report will be released shortly about these. However, the key points are:
- Developing ideas on how to protect systems and data more robustly against both accidental and deliberate damage
- Balancing system availability with protecting data integrity during periods of operational stress
- How to secure data against permanent loss, so that we can absolutely guarantee data integrity and availability
- How to resume key services safely when disruptions have occurred, without losing data, damaging integrity, or causing contagion into the wider financial system
Mr. Nelson said that these are all complex issues, which neither regulator nor firms can fix in isolation, but they do define the key operational disruptions scenarios for which better solutions are needed compared to those we have today. He concluded, that, in the next ten to twenty years, there is an opportunity to add to the many advantages of the UK by making it one of the most operationally resilient locations anywhere in the world. "Imagine being able to justifiably claim that even with operational disruption payments can be made and business can still be conducted after only a short delay. As a central bank and a regulator we are ready to take up the challenge."
Related Link: Speech
Keywords: Europe, UK, Banking, Cyber Risk, Operational Resilience, Cyber Testing, International Cooperation, CMORG, Operational Risk, PRA, BoE
Previous ArticleIOSCO-GEMC Publishes Recommendations Related to Sustainable Finance
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).