Irelands’ Financial Service Sector Guidance on Operational Resilience

Irelands’ Financial Service Sector Guidance on Operational Resilience

Vinod Menon
Head – Customer Success
Vinod Menon
Head – Customer Success

The Central Bank of Ireland`s objective of this guidance is to communicate to industry how to prepare for, respond to and recover and learn from an operational disruption that affects the delivery of critical or important business services. The Guidance aims to boost operational resilience and recognise the interconnections and interdependencies, within the financial system, that result from the complex and dynamic environment in which the firms operate.   


Objectives of the Guidance

  • Firms act to the best benefits of consumers
  • Firms are financially sound and safely managed with sufficient financial resources
  • Firms are governed and controlled appropriately, with clear and embedded risk appetites, which drive an effective culture
  • Firms have frameworks set up to ensure the failed or failing providers go through orderly resolutions.


Scope and implementation of the Guidance

This guidance applies to all regulated financial service providers. Firms are expected to be actively and promptly addressing operational resilience vulnerabilities and be in a position to evidence actions/plans to apply the guidance no later than two years of it being published.


Operational Resilience and its Pillars

Operational Resilience is the ability of a firm, and the financial services sector as a whole, to identify, respond to, recover and learn from an operational disruption. The following are its pillars

  1. Critical or Important Business Service is a service provided by a firm to an external end user or market participant where a disruption to the provision of the service could cause material harm to customer and market integrity; jeopardize policyholder protection; or threaten a firm’s viability, safety and soundness, or financial stability.
  2.  Impact tolerance is the maximum level of disruption a critical or important business service can withstand.
  3.  Mapping is the process of identifying, documenting and understanding the series of activities involved in delivering critical or important business services. This involves the identification of all interdependencies and interconnections including people, processes, information, technology, facilities, and third parties service providers.
  4.  Scenario testing is the test of a firm’s ability to remain within its impact tolerance for each of its  critical or important business services in the event of a severe, but tenable disruption of its operations.

 
 Operational Resilience Vs Operational risk management

Operational resilience focuses on building capabilities to deal with risk events when they materialise while Operational risk management focuses on building defences to prevent risk events from occurring.


What are the core principles of any operational resilience framework?

  • Board and senior management ownership of the Operational Resilience framework;
  • Identification of critical or important business services and all activities, people, processes, information, technologies and third parties involved in providing these services;
  • The setting of impact tolerances for each of these identified services, and the testing of the firm’s ability to stay within those impact tolerances during a severe but plausible downtime scenario; and
  • The Ongoing review of how a firm responded and adapted to disruptive or potentially disruptive events so that lessons learned can be incorporated into operational improvements to continuously increase the operational resilience of the firm.
  

The Central Bank Guidance is built around three pillars of Operational Resilience

  1. Identify and Prepare;
  2. Respond and Adapt;
  3. Recover and Learn.
 

1. Identify and Prepare

A. Governance

The Board has ultimate responsibility for the Operational Resilience of a firm. The Operational Resilience Framework should be aligned with a firm’s overall Governance and Risk Management Frameworks.

B. Identification

The Board should review and approve the criteria for critical or important business services and identify its critical or important business service.

C. Impact Tolerances

Impact tolerances should be approved for each critical or important business service and should develop clear impact tolerance metrics.

D. Mapping

A firm should understand and map how its critical or important business services are delivered and capture the third party dependencies in the mapping of critical or important business services.

E. ICT and Cyber Resilience

A firm should have ICT and Cyber Resilience strategies that are integral to the operational resilience of its critical or important business services.

F. Scenario Testing

A firm should document and test its ability to remain within impact tolerances through severe but tenable scenarios.


2. Respond & Adapt

A. Business Continuity Management

Business Continuity Management should be totally integrated into the overarching Operational Resilience Framework and linked to the firm’s risk appetite.

B. Incident Management

The Incident Management Strategy should be totally integrated into the overarching Operational Resilience Framework.

C. Communication Plan

Internal and External Crisis Communication plans should be totally integrated into the overarching Operational Resilience Framework.


3. Recover & Learn

A. Lessons learned exercise and continuous improvement

Lessons learned exercise should be conducted after a disruption to a critical or important business service in order to enhance a firm’s capabilities to adapt and respond to future operational events, and should promote an effective culture of learning and continuous improvement as operational resilience evolves. 

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