The Institute of International Finance (IIF) and the Global Financial Markets Association (GFMA) have submitted a joint response letter to the Basel Committee on Banking Supervision (BCBS) supporting the draft principles put forward in their Consultative Document “Principles for operational resilience.”
The Associations in June 2020 submitted a letter to the BCBS and other global standard-setters asking for the development of such principles given that operational resilience has been of high importance for both public sector authorities and financial institutions and has more recently come into even greater focus due to the impact of the COVID-19 pandemic.
Operational resilience is extremely important for the public and private sectors to maintain confidence in the financial industry and to support financial stability and economic growth. Operational resilience is important for individual institutions, and across the financial sector, in support of customers, markets and the communities and broader economies they support nationally and globally. As BCBS members and the standard-setting bodies consider the suggested principles, the letter encourages ongoing collaborative efforts to continuously improve and strengthen the level of operational resilience across the global financial system.
A key priority for our members is global coordination and alignment among policymakers and supervisors on the policy outcomes, terminology and supervisory approaches to operational resilience. Global consistency was an overarching consideration in our development of five guiding principles that were published for discussion by the Associations’ members on how to support the strengthening of operational resilience maturity in financial services. The potential for fragmentation due to divergences in regulatory standards and supervisory oversight poses substantial risks and operational challenges for financial services firms that operate globally and, in turn, for the strength of the financial system.
The following other overarching messages are emphasized in the response letter:
- Regulatory alignment and consistency are needed, internationally and within jurisdictions, on the outcomes sought and is a key focus given that a financial firm’s businesses and associated processes may span multiple geographies.
- Operational resilience should focus on the alignment of outcomes that promote financial and market stability as well as firm safety and soundness by protecting and resuming key services during operational disruptions, enabling firms to continue serving the needs of their clients.
- It is important to strive for a principles-based, risk-based and outcomes-focused approach where firms have the flexibility to determine the specifics of their own operational resilience programs in a way that is relevant and proportionate to their business and risk profile.
- Firms should be able to leverage existing broader risk management frameworks, if they choose, acknowledging that these may need to be augmented or supplemented, as necessary. If the desired outcome is achieved, firms should also not be required to leverage existing frameworks.
- Continued public-private collaboration is important, including beyond the consultation period: operational resilience maturity will be an iterative process and it will take time to embed what are some new and complex concepts with the objective of supporting regulatory consistency and comparability.
- Clarity is needed on how the operational resilience and operational risk principles are interconnected and related. Further clarity would help to avoid overlaps in different areas (e.g. risk appetite, taxonomy, business continuity, tolerance thresholds) and to prevent different interpretations.
- The industry needs a thoughtful implementation timetable and overall flexibility on how firms demonstrate resilience outcomes (i.e., principles-based, without prescribing specific metrics), allowing the necessary time for collaboration with a cross-border firm’s supervisors in different jurisdictions.
- While direct oversight would be outside the scope of the BCBS, we think the final principles should recognize, the need for sector-wide collaboration, including financial market infrastructures (FMIs) and critical third parties, to most effectively ensure operational resilience across the financial sector.