For Regulators Covid-19 is Just a Rehearsal for Resilience

Covid-19 put the operational flexibility of the financial services industry to the ultimate test: could the business continue when nobody was in the office? The answer so far is an encouraging one, but the global pandemic also coincided with a consultation by the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Bank of England on new measures to further enhance the operational resilience of the financial services industry. Dominic Hobson asked Chris Freeman, a former head of operations at Aviva Investors, Nomura Asset Management and Royal London now consulting on operational issues, what the biggest operational risks now are.

Questions that are being asked

1. We both remember the FCA raising operational resilience as an issue for asset managers who had outsourced to global custodians back in 2012-13. How did the industry handle the problem then?

2. We have had another consultation by the FCA and the Bank of England which closed on 1 October. What was new?

3. What has Covid 19 taught us about operational risk and resilience?

4. The FCA has made clear operational resilience is not just about financial stability but about customer service and investor protection as well. What are the implications of that for regulated firms?

5. Senior managers are now being held personally responsible for operational shortcomings. Has that changed attitudes?

6. Asset management outsourcing has changed tack, to a more “open” architecture – as with the State Street Alpha platform. Does that reduce operational risk?

7. Is there a “return” on operational resilience or is it all cost?

8. What part does digital technology play in reducing (or increasing) operational risk and resilience?

9. What do you consider to be the biggest operational risk firms face now (e.g. loss of tacit knowledge and operational experience)?