Operational resilience in Financial Services: Time to act

As a world-leading financial and related professional services centre and number one exporter of financial services, the UK economy relies on the industry continuing to operate uninterrupted. However, financial services are at a critical juncture, amid technological disruption, increasing regulation and pressure on business models.

Together with TheCityUK, and drawing on extensive engagement with leaders across the industry, we have developed this report to help define and identify the key threats to operational resilience and recommendations for industry and regulators to help ensure the UK remains a world-leader and at the forefront of regulatory development.

How new ideas create risks and opportunities

Innovation is the lifeblood of financial services and is one of the most important issue on many firms’ agendas.

While the financial services sector has always embraced innovation, the current speed of innovation is not matched by the depth of understanding at a management level.
Embracing integration without resolving complexity raises the stakes in respect of operational resilience.

The role of good governance

Governance is the framework of rules, relationships, systems and processes by which a firm is controlled and operates, and the mechanisms by which a firm and its people are held to account.

It determines the rules and procedures through which a firm’s objectives are set and provides the means to deliver strategy and monitor performance. Importantly, it defines where accountability lies and establishes a clear compliance and risk culture.

Many UK-based institutions express confidence in their governance frameworks and capabilities. Our report highlights area where improvements need to be made.

Firms must break down traditional siloes to become more resilient.
Good quality, future-looking management information is essential but it is hard to achieve.
Culture will play a key role in enhancing resilience.

A shifting landscape

Operational resilience has risen to the top of the regulatory agenda over recent years, due both to an increase in threats and the potential impact on customers and the financial system.

Resilience is first and foremost a business imperative, but there is a role for regulation.
Proportionality is key to supporting both resilience and innovation.
You are only as strong as your weakest link in a global financial ecosystem. Resilience must be predicated on international consistency and cooperation.

Systemic implications

As global financial services embrace digitalisation, they are becoming more connected and interdependent.

As cross-sectoral dependencies grow, the resilience of individual participants cannot be viewed in isolation.
Cross-sector collaboration improves understanding and enables more informed planning, both for individual firms and collectively.
Sharing cultures and goals with third party providers will support resilience.
Services are increasingly provided from outside the regulatory perimeter. Is it time to redraw the boundaries?