Financial Services SIG

Maria Singende, IRMCert, Risk Manager at Barclays Bank and Keith Webb, Director of Consulting, Business Risk at Xcina Consulting

As with most other industries, Covid-19 has taken no prisoners in financial services. The impacts are broad and varied. Financial and crypto markets in free fall, potential widespread credit defaults, insurers potentially forking out for business interruption or just general resilience issues especially where there are dependencies on third parties both local and foreign. Financial services firms are continuing to support firms and individuals, albeit in a very disrupted way, through transactional banking, savings, loans, insurance, mortgages, and complex electronic payments infrastructure that together underpin domestic and international activities. Let’s take a few examples. Banks are increasing the availability of loans while at the same time bracing for significant credit-card losses as cash-strapped customers may be faced with rising unemployment, furloughing, and salary cuts. Similarly, insurers are supporting customers while facing uncertainty around potential outlays for travel or business interruption. Some impacts may even create opportunities to further the digitalisation of current processes that have so far evolved slowly. In addition, governments around the world have announced significant emergency funding initiatives for people and companies. These funds will be distributed through existing electronic financial payments architecture.

Covid-19 is testing how resilient the FS sector is. It remains vital for individual firms to assess their own capability and capacity for operational resilience and mitigation strategies. Firms have activated their resilience plans, triggering urgent risk responses to all risks, including ones in relation to third-parties which are critical dependencies for many firms. Key considerations include: operational resilience and business continuity; cyber-security and data security; and continued regulatory compliance. Enterprise-wide risk management frameworks in financial services firms have been instrumental in helping firms manage these considerations in alignment and to respond appropriately. For instance, banks have seen huge drawdowns on facilities. Risk managers with the right qualifications and experience are helping in the close monitoring of the risk profile to inform important decisions on risk appetite as well as what action to take around liquidity and capital adequacy. Risk assessments, monitoring and reporting have proven crucial for these firms. Firms’ contingency scenarios have never planned for something with so much disruptive effect. There are significant changes and challenges – some shared, some specific. Examples include: care arrangements for family, parents and children; remote working; virtual meetings; relative isolation; working arrangements; and working hours. As a result, banks are already facing massively increased demands for emergency loans. For example, NatWest (the UK’s biggest business lender) reported that they have received nearly ten times as many calls as usual from firms that are struggling.

The challenges faced by the FS institutions show that there are lessons to be learnt: > Alterations to resilience plans and the testing of them. This includes preventative measures and the capabilities in people, processes, technology and culture > A greater understanding of the dependencies around third parties and the sensitivities in relation to resilience strategies. This includes a clear understanding of key business activities and accurately identifying the key risks and mitigation strategies > The need to ensure there are effective frameworks to identify risks, set minimum expectations for controls, and plan for critical systems and processes failing eventually > The importance of maintaining adequate liquidity and having diversified portfolios > An understanding of the importance of front office activities, and the ability to quickly adapt to protect assets, employees and customers ensuring there is a good balance between automation and manual activities.

> The need for highly skilled people with diverse specialisms and professional qualifications that bring pragmatic approaches to solutions