Understanding the FCA's Operational Resilience Rules
The Financial Conduct Authority is enacting a new set of regulations that aims to ensure that businesses can endure and recover from operational disruptions. These FCA guidelines are applicable to all FCA-regulated firms, namely banks, insurers, and investment firms.
Deadline for Compliance
The FCA set a precise deadline, March 31, 2025, for implementing the new operational resilience regulations. This implies developing an all-encompassing plan by the firms for identifying, assessing, and mitigating operational risks. FIs are supposed to prioritise compliance as no grace period after this deadline is entertained.
Core Principle: The Provision of Important Business Services Despite Disruptions
The FCA’s rules require businesses to deliver important business services during disruptions. These important business services keep the business operating and meet consumer obligations. Examples consist of:
- Customer onboarding and account management
- Claims processing and payments
- Trade execution and settlement
The FCA guidelines emphasise that operational resilience is primarily about preventing disruptions and maintaining service during an occurrence. Firms must identify threats, develop strong controls, and have comprehensive recovery plans to minimise downtime and customer impact.
Key Areas of Focus: FCA's Observations and Insights
Understanding Important Business Services (IBS)
IBS are key functions that your company must provide to meet customer requests and regulatory requirements. Examples include payment processing, customer account management, and trade execution.
Understanding and prioritising IBS is key. Disruptions to these services can have serious consequences for your consumers, reputation, and financial stability.
Prioritising Critical Services: The FCA operational guidelines for firms emphasises categorising IBS according to their criticality. This enables you to direct resources and mitigation techniques towards the most critical services.
Impact Tolerance
The level of disruption an IBS may tolerate before becoming unbearable. This considers the outage’s duration, financial costs, and reputational impact.
Tolerance Thresholds for Different Scenarios: Firms should establish tolerance thresholds for various disruption scenarios, such as cyberattacks and power outages. This helps to determine the resources required to maintain service continuity within acceptable limitations.
Mapping and Third-party Dependencies
The FCA guidelines press the need to map dependencies between internal operations and external third-party providers. This helps you identify crucial dependencies and potential weaknesses in your service delivery chain.
Third-Party Risks: Assess and minimise risks from vulnerabilities in third-party services. The FCA priortises due diligence and contractual arrangements to ensure that third parties fulfil your operational resilience requirements.
Scenario Test
Scenario testing simulates numerous disruption scenarios to evaluate your company’s ability to respond and recover. This helps to uncover flaws in your operational resilience structure.
Preparation and Improvement: Businesses can pinpoint areas for development, enhance response strategies, and boost confidence in their capacity to manage disruptions by putting various scenarios to the test.
Vulnerabilities and Remediations
This involves proactively discovering potential vulnerabilities in your systems, processes, and third-party dependencies. The FCA signifies regular risk assessments and vulnerability scans.
Clear Remediation Plans: Develop detailed remediation plans for identified vulnerabilities. This includes prioritising significant concerns, putting mitigation techniques into action, and setting remedial timetables.
Response and Recovery Plans
Appropriate response and recovery strategies are tailored to the unique needs of each IBS and the possible interruption scenarios. These plans should include specific measures for detecting, containing, recovering, and communicating during an occurrence.
Testing and Review: The FCA operational guidelines for firms highlights the importance of periodically testing and reviewing response and recovery plans. This guarantees that the plans remain effective and can respond to changing risks.
Governance and Self-Assessment
The firm’s holistic governance framework should encompass operational resilience. This requires clear lines of accountability, board-level oversight, and a workplace that upholds operational resilience.
Self-Assessment: The FCA guidelines mandate companies to examine themselves frequently regarding their operational resilience frameworks. These self-assessments should be documented and used to determine areas for improvement.
Embedding Operational Resilience
Developing operational resilience involves more than just rules and procedures. It necessitates a cultural transformation inside the organisation in which operational resilience is viewed as a key value and everyone plays a part in preserving it.
Risk Management Framework: The present risk management framework should be incorporated with operational resilience. This ensures a comprehensive approach to addressing all risks, including operational disruptions.
Horizon Scanning
This proactive method identifies emerging threats that may not be visible right now. This could include tracking industry trends, technological improvements, and geopolitical happenings.
Testing and Controls Relevance: By constantly monitoring for new risks, businesses can ensure that their current operational resilience controls and testing scenarios remain relevant and effective in the face of changing threats.
Macro Global's Operational Resilience Strategy
Macro Global is a premier financial regulatory consulting firm that focuses on operational resilience. MG’s experts have vast industry expertise and experience helping organisations establish solid frameworks to resist disruptions. Understanding the FCA’s operational guidelines for firms led MG to apply the regulatory compliance requirements for FSCS SCV reporting.
- Utilises advanced data mining, cleansing, enrichment, and reconciliation functionalities to enhance operational data accuracy and reliability in the FSCS SCV report generation.
- Prioritises data aggregation for comprehensive integration of diverse datasets and account segregations.
- Maintains high data quality standards by integrating with core banking systems and implementing multi-level data validations and control procedures.
- Upholds stringent protocols to ensure high data security and regulatory compliance throughout the regulatory life cycle.
- Promotes risk reduction and security compliance through robust security and compliance measures.
- Stays ahead of industry peers by embracing FSCS regulatory compliance changes and deploying and managing its FSCS Single Customer View reporting.
- Transitions towards highly scalable 10th Gen Single Customer View Platforms to adapt and respond to regulatory requirements efficiently.
Macro Global’s commitment to operational resilience is evident through its strategic adoption of best practices, aligned with its proactive approach to regulatory compliance changes.
MG don’t just assist Firms meet compliance requirements; It offers expert business consulting to optimise data governance and operational practices for efficient FSCS reporting. Its ongoing support from subject matter experts ensures data accuracy, compliance, and peace of mind. Additionally, MG provides flexible ad-hoc assistance to accommodate evolving HMRC demands and expanding reporting needs.
MG’s professionals will dive into best practices, keep firms up to date on emerging rules, and assist them in continuously improving their preparedness for any disruption that may arise, maintaining its competitive edge.
Collaborate with Macro Global to create a future-proof foundation for operational resilience.
SCV Alliance
FSCS SCV Audit Platform
