Banks told: Look, your systems WILL fail. What is your backup plan?
Financial watchdogs threaten more regulation to focus minds on business services, comms
Banks were today told to assume there will be problems with systems and to work on their backup plans following a series of failures caused by increasing reliance on technology.
In a joint paper, the UK's Financial Conduct Authority and the Bank of England's Prudential Regulation Authority said that operational resilience failures pose a risk to vital services, consumers and the firms themselves.
Although described as a discussion paper, the document makes plain that regulators are considering how to update policies to force banks to improve resilience, with areas of focus listed as risk management, outsourcing, communication and business continuity plans.
The paper noted that banks are facing new challenges thanks to technical innovations like distributed ledgers, customer demand for instant or mobile access, greater reliance on outsourcing, and an increase in cyber incidents and system complexity.
Taken together, this increased and changing risk means that banks now need to expect issues with systems or processes and work on plans to minimise impact on business services.
"Avoiding disruption to a particular system supporting a business service is a contributing factor to operational resilience," the paper said. "But ultimately it is the business service that needs to be resilient – and needs to continue to be provided.
"Boards and senior management should assume that individual systems and processes that support business services will be disrupted, and increase the focus on backup plans, responses and recovery options."
This means focusing on the wider impact of disruptions – not just on restoring systems and processes – for instance, by setting standards for a maximum acceptable outage time for a business service and testing this with "severe but plausible scenarios".
They are also told to map products and services to underlying systems, identify how issues will impact customers and the firm's own viability, and address the speed and effectiveness of communications with users.
The report comes as TSB has been slammed for the way it handled the IT meltdown in which customers were unable to access services for a week at the end of April, thanks to a bodged systems migration.
The response of bank boss Paul Pester to the chaos even prompted the Treasury Committee to take the unprecedented step of writing to the bank's chairman (PDF) to question his suitability for the role.
In particular, the committee was infuriated with "complacent and misleading" public communications that didn't acknowledge customers' problems after Pester went so far as to claim the migration had been a success.
In this context, the paper's focus on communications and the need to address the overall impact of disruption instead of taking a granular focus on individual systems is of little surprise.
Banks, trade associations and consumer bodies have been given until 5 October to respond to the paper. ®