One size does not fit all – adapting and thriving under the FCAs Operational Resilience rules

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The FCA Operational Resilience rules came into effect from the end of March this year. The rules are designed to ensure the UK financial sector can weather major future disruption, such as that caused by the global pandemic, which in turn could cause harm to consumers and pose a risk to the stability of the financial system.

So, as firms look beyond the initial requirement to document their processes, they need to consider how they will ensure their own resilience.

Firms can draw parallels in terms of resilience from individual’s experience and reaction to events in the recent past. Being able to cope, adapt and thrive in difficult situations is important in a world that is rapidly changing.

Whilst the impact of the pandemic has been far from equal, we have all had our own struggles. Whether that is in terms of care-giving, personal health, or social isolation, we have needed to find ways to cope and adapt to a new situation.

Diverse industry

The way we cope differs, and often on a day-to-day basis for the same person. Resilience is not only about trying to cope no matter what, but also recognising where the limit is, and then finding the most appropriate response to the situation. At some point, everyone will need help, it’s just not always at the same point.

Just like our personal experiences, wealth firms need to ensure resilience, but in different ways depending on the circumstances. Operational Resilience applies the same rules to both large and small companies alike. The rules may be the same, but the application of them, and the mechanisms to implement the rules will be very different.

In 2021 alone, we produced approximately 500 process maps, for 8 different clients. What did we find?

Whilst we might use a defined approach and templates that we can easily mobilise to deliver process mapping, each client is different and that  is crucial to factor in. Some firms like to focus  solely on identifying areas for process improvement. Others are looking for help to embed a new framework and methodology to help them focus on process mapping going forward. Each are equally valid and depend on where the firm is on their growth trajectory.

Common ground

One challenge which tends to be consistent however, is how to embed process ownership, documentation and improvements within the operational teams which are the ultimate owners. How this can be achieved depends on many things, but often smaller organisations can struggle to provide necessary resource for this activity to be a success. The implications of letting process documentation fall out of date means another larger scale project is required to get them back on track. This is stressful and time consuming.

Operational Resilience isn’t just about mapping and maintaining processes. It also needs to consider what events could impact on the firm’s ability to continue to deliver those processes which would materially impact on the customer or the market if failures were to occur.

This means not only identifying the events, but also working to understand how to reduce the risk of those events occurring, or to minimise the impact when they do.

Not only do products, propositions and services differ, but so too does a firm’s flexibility and autonomy. For example, a smaller operational team with more manual processes will need a different response to a pandemic than a larger team with more automation. Whilst the larger firm can rely on the automation in place, they will have more segmented roles with less cross-training, which make it harder to re-deploy staff to the higher risk areas. If the event was a large-scale internet outage, for example, then the levels of automation in place may become a hindrance rather than a benefit. Tackling unknown knowns

Looking ahead for threats is another challenge, and like individuals, organisations tend to be bad at predicting the future. Recency bias, which puts undue emphasis on recent events rather than having a reasonable perspective on the past will also threaten the success of Operational Resilience.

What comes next, will very likely differ from what has come before. In the same way that firms’ emergency responses before Covid would have relied on standby sites that proved useless when we all needed to work from home, firms need to ensure they are truly challenging themselves to consider the right scenarios, and therefore create bespoke responses to them.

At the heart of it all, firms must consider the outcomes to the customer, and in this way, the implementation, and ongoing oversight of Operational Resilience can go hand in hand with the likely requirements of the Consumer Duty. Getting this aspect right now, will lay the foundations for the wider customer outcomes which will be necessary going forward.

Contact us for more information info@simplifyconsulting.co.uk