Coupled with this, and an area that has received less attention though is significant, is the increased and growing focus on resilience within firms. There is a growing mindset of collaboration that is driving deep change and maturity within industries including financial services, bringing together firms, ordinarily fierce competitors, to share insights and best practices on the risks to business and industry resiliency, including the challenges created by COVID-19, cyber threats and other areas of risk.
In Australia, this type of collaboration was seen in late March when Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), gave Australian banks approval to work together to implement COVID-19 relief packages for small businesses and individuals. Over the following weeks the ACCC provided similar authorisations to telecommunications companies, insurers, energy companies and private hospitals. These authorisations were temporary and extraordinary in scope, and are different from coordinated efforts around resiliency, but nonetheless reinforce the need to work together to find solutions that strengthen industries.
COVID-19 has certainly escalated the need for operational resilience. Even before COVID-19, DTCC released a paper late last year, Resilience First, reflecting on its own experiences in building operational resilience internally and with stakeholders. Describing resilience as the “ability to prevent, withstand and quickly recover from disruptive events and continue providing critical business services”, the paper advocated that embedding resilience into the corporate risk culture and mindset improves risk and response management throughout the organisation. It also fosters greater cross-functional alignment on a shared approach and common objectives.
Like many crises before it, DTCC saw trading volumes during the pandemic surge, placing considerable pressure on infrastructures, technologies and workforces operating remotely. While market infrastructure providers performed well and, in some cases, took actions to promote increased resiliency within the market, robustness is only a piece of resilience. Resilience needs to become part of the corporate and market psyche, in the same way in which the continuous pursuit of efficiency has. Economies of scale and efficiency gains in the financial services industry, in the hunt for cost savings, have reduced the number of critical service providers, creating higher concentration risk.
At the same time, the industry has become more complex, with increased interconnectivity risk between vendors and firms and the adoption of new and emerging technologies picking up steam. This increasingly multifaceted and complex environment demands a more holistic, forward-looking and collaborative approach to enhancing resilience. At the same time, regulators are also placing greater emphasis on resilience. As the ACCC example shows, regulators are facilitating collaboration and co-operation to help with the process.
So how do we move forward?
First, rather than narrowly focusing on systems, resilience-enhancing practices should aim to safeguard critical business services against a wide range of technical, physical and financial disruptions.
Second, industry co-ordination and cooperation will be a key measure of success. The very nature of systemic risk requires a collaborative process and co-ordinated effort, within companies and across industries, to help detect systemic shocks before they strike and to recover from them as quickly as possible. Ongoing sector-wide collaboration and testing will be necessary to ensure all firms understand their roles and have the appropriate level of readiness to mitigate factors that could disrupt their critical business services.
Third, firms must strive to promote a “resilience-centric” corporate culture, fostering a mindset that focuses on continuous improvement when it comes to resiliency that is supported by the firm’s board and senior management. Employees should be encouraged to challenge the status quo and create a mindset that is based on continuous learning.
The ever-growing risks to the industry are far too great, and we must continue to evolve our resilience practices and capabilities to meet the demands of tomorrow while continuing to safeguard the markets today.
David LaFalce, managing director, global head of business continuity and resilience at The Depository Trust & Clearing Corporation