Operational Resilience
UK OperationalOperational Resilience
What is UK Operational Resilience?
UK Operational Resilience a set of regulations and guidelines introduced by the UK’s financial regulators (the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA), and Bank of England (BoE) to ensure operational resilience within the financial services industry.
Main Goals:
- To protect the UK financial system from the impact of operational disruptions (e.g., cyberattacks, IT failures, natural disasters).
- To safeguard critical business services and the interests of consumers.
Key Requirements for Operational Resilience and Main Regulatory Papers
UK Operational Resilience directly references, and draws upon principles and concepts outlined in several key regulatory documents and standards. Here are some of the most important ones:
Supervisory Statements by UK Regulators:
- PRA Supervisory Statement SS2/21: Operational Resilience. Outlines the PRA’s expectations for regulated firms, including the process of setting impact tolerances, scenario testing, and governance.
- FCA & PRA Policy Statement PS21/3: Building Operational Resilience. Provides a more holistic overview and additional guidance, including alignment with international standards.
Bank of England (BoE) Papers & Frameworks:
- The Bank of England’s operational resilience framework (2018): Serves as a foundation, introducing concepts of important business services, impact tolerances, and stress testing.
- BoE Discussion Paper on Outsourcing and third-party risk management (2018): Highlights the importance of managing risks arising from third-party dependencies, a key focus of UK Op Res.
International Standards & Best Practices:
- Basel Committee on Banking Supervision (BCBS) Principles for Operational Resilience (2021): Provides global guidance on operational resilience frameworks, influencing the approach of UK regulators.
- The Financial Stability Board’s guidance on cyber resilience (2020): Emphasizes the criticality of cybersecurity within operational resilience, aligning with the UK framework.
Other Relevant References
- UK Government National Cyber Security Strategy: Addresses the wider cybersecurity threat landscape, which informs operational resilience requirements for financial institutions.
- Relevant industry standards (e.g., ISO 27001, NIST Cybersecurity Framework) can be referenced by organizations when developing their operational resilience programs and in demonstrating compliance.
Key Requirements of UK Operational Resilience:
- Identify Important Business Services: Financial firms must determine the services that are most crucial for their operations and the broader UK economy.
- Set Impact Tolerances: Establish the maximum level of disruption they can tolerate for each important business service, in terms of downtime or reduced functionality.
- Scenario Testing: Conduct rigorous stress tests simulating various disruptive events to assess the firm’s ability to stay within impact tolerances.
- Mapping and Risk Management: Identify potential vulnerabilities and dependencies, including reliance on third parties, and develop plans to mitigate these risks.
- Board-Level Responsibility: The board of directors bears ultimate responsibility for ensuring compliance and embedding operational resilience within the organization’s culture.
Similarities and Differences with DORA:
Both DORA and UK Op Res frameworks place strong emphasis on operational resilience and proactive ICT risk management.
UK Op Res was introduced slightly earlier, with its first deadline passing in March 2022, while major DORA obligations will take effect from 2025.
There is significant overlap in the areas they cover, and both strive to harmonize operational resilience standards.
Why is UK Op Res Important?
- Proactive Risk Mitigation: Helps financial institutions prepare for unforeseen events and reduce their negative impact.
- Customer Protection: Ensures essential financial services continue to be available to consumers even during disruptions.
- Financial Stability: Strengthens the UK financial system as a whole, making it more resilient to shocks.
- Competitive Landscape: Firms demonstrating robust operational resilience gain an edge in the market.
WHO DOES IT IMPACT?
How to comply with UK Operational Resilience?
1
End-to-End Strategic Support
Develop a tailored operational resilience roadmap aligned with your unique business model, risk profile, and the evolving regulatory landscape.
Establish clear governance structures, board-level ownership, and metrics for tracking progress.
2
Scenario Design & Testing
Design rigorous, realistic scenarios covering a wide range of operational disruptions, including cyber attacks, natural disasters, and third-party failures.
Facilitate tabletop exercises and simulations to test incident response plans and decision-making under pressure.
3
Third-Party Risk Management (TPRM)
Conduct thorough due diligence and ongoing monitoring of critical third-party vendors to assess their resilience and potential impact on your operations.
Assist in drafting contractual terms to ensure third-party alignment with your operational resilience standards.
4
Impact Tolerance Calibration
Support the process of defining meaningful impact tolerances for your important business services, taking into consideration customer needs, regulatory requirements, and your risk appetite.
Model the financial and reputational implications of exceeding impact tolerances.
5
Change Management & Culture
Emphasize embedding operational resilience throughout the organization’s culture, not just as a compliance exercise.
Develop change management strategies to drive buy-in and foster a proactive approach to risk identification and mitigation.
6
Data-Driven Insights
Leverage data analysis to map operational dependencies and potential vulnerabilities, informing your resilience strategy.
Establish operational resilience-specific dashboards providing continuous visibility into your risk posture.
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