As they navigate the COVID-19 pandemic, Canada's banks have a fresh opportunity to prioritize what matters most to their customers while protecting critical services. Many have already started to re-examine investment decisions and accelerate digitization amid the rapid shift to remote working. Also front of mind is the need to evaluate operating models, processes, infrastructure and systems to improve resilience.
Having experienced the challenges in navigating the crisis, banks have learned a lot about themselves, particularly around their approach to and capabilities for being resilient.
The pandemic has raised the profile of resilience as banks recognize it’s no longer an option but a necessity. While the crisis has, on one hand, been an exercise in workforce mobility and supply chain resilience, the outcome could have been different. The sense of solidarity that everyone was in this together, as well as regulator relief and government financial intervention, have helped organizations navigate the crisis effectively. But with the pandemic reminding us of the challenges a crisis presents, banks have an opportunity to evolve their organizations now.
Regulators, which have increasingly focused on operational resilience following high-profile operational failures around the world, are calling on banks to take action by putting this issue on par with their ability to handle financial stresses. Those that make this a priority now will see the benefits sooner.
Operational resilience is about determining and protecting what matters most to your customers and markets as your first priority. It represents a shift in thinking and approach from the traditional practices many organizations have in place today. This approach seeks to embed resilience into the design of core processes to manage through disruption and sustain customer and market trust rather than looking to fix a problem if and when something fails.
One challenge will be to free up resources to invest in both new business priorities emerging from the pandemic and the changes needed to be more resilient. But this is where focusing on operational resilience offers a strategic advantage since it gives banks a framework for assessing what their priorities should be.
At the heart of this process is identifying and developing an end-to-end understanding of your critical business services. This requires you to explore what your most critical services are:
Is your priority, for example, to ensure you can process wholesale payments or are you most worried about a cyberattack on your bank machine network in a key market?
If a major disruption were to happen, how would you prioritize which of your retail bank and capital markets businesses to restore first?
By exploring questions like these, operational resilience can become a tool for directing resources to what matters most and shifting them away from areas that are no longer a priority. This is a key step in making the bank fit for growth.
We’ve found four essential elements for building and maintaining operational resilience:
Strategy: Boards and senior management play a critical role in setting business and technology strategies and ensuring operational resilience is embedded in them.
Governance: Ensure appropriate governance, oversight and risk management practices that set a firm mandate for resilience with clear accountability and the support of the executive and the board. Break down silos, especially when it comes to areas that cross traditional internal boundaries and responsibilities. To do this, some organizations are creating the position of a chief resilience officer who straddles the business, technology and risk functions.
Transformation program: This is a key step that requires the bank to understand its current capabilities from the critical services lens, define the end state and set out a road map to remediate any gaps with the appropriate investment and resource support.
Operating model: The right operating model will identify the critical business services and who owns them. Effective management information and reporting on resilience will alert you when services are under stress so you can take action before failure. This includes identifying impact tolerances that set out how much downtime is acceptable. You’ll also need an effective end-to-end testing regime that focuses on severe, yet plausible, scenarios.
The exercise of identifying your most critical services can help you increase the relevance of your offerings and, in the process, deepen your customer relationships. Behavioural changes that continue after the pandemic, for example, may shift bank branches away from focusing on transactions to dealing with more complex matters, relationship management and business development. As new customer patterns take root, banks may also reassess the size, configuration and density of their branch networks to reflect structural shifts in demand.
Operational resilience can also help you address the constant and growing push for cost savings. This is because many of the solutions that can ensure the reliability of critical services, such as automating manual tasks, offer new opportunities to increase efficiency.
By making this a priority, you’ll be both positioning the organization to successfully manage future disruptions and freeing up resources and capacity for the investments you need to make for the long term. As a resilient enterprise, you’re not just minimizing risk, but you’re also delivering sustainable business value.