Business continuity planning in banking and finance

Oro provides content designed to educate and help audiences on their compliance journey.

“In banking or finance, trust is the only thing you have to sell.”

Patrick Dixon

Banking and finance is a key part of the modern economy, and ensuring the stability of financial institutions is paramount. But how do banks maintain their operations during unforeseen disruptions and crises? 

The answer is robust Business Continuity Planning (BCP). 

If you’re in banking or finance, you’ll know BCP is a critical component of any bank’s risk management strategy, and its importance cannot be overstated. In this post, we delve into the world of BCP in banking, highlighting its role and key components.

Key takeaways

• Business Continuity Planning (BCP) is essential for banks to remain resilient during crises and comply with regulatory requirements.
• BCP should include risk assessment, technical solutions, HR & training, and a Business Impact Analysis (BIA).

The role of Business Continuity Plans in banking

Business Continuity Planning is a proactive process designed to anticipate potential threats, vulnerabilities, and weaknesses. The BCP process bolsters a bank’s resilience during crises. It aims to reduce losses and maintain business operations despite disruptions. 

Imagine a scenario where a major natural disaster or cyber attack impacts your bank’s operations, and you have no plan in place. The consequences could be dire, leading to financial loss, reputational damage, and regulatory non-compliance.

Banking’s BCP encompasses having an established plan, adhering to regulatory standards, and stabilizing financial markets. It encompasses a broader scope than Disaster Recovery Planning (DRP) or Business Continuity and Disaster Recovery (BCDR) plan, which focuses solely on the technical aspects of recovering IT infrastructure and systems. 

At its core, a thorough BCP in banking: 

• Addresses all aspects of a bank’s operations
• Trains employees to manage disruptions
• Ensures uninterrupted service to customers while retaining its market position

Regulatory requirements

Banks are required to have a comprehensive BCP in place to address potential disruptions and ensure compliance with industry standards. This includes adhering to the ISO 22301:2019 standard, the global benchmark for business continuity management.

Adherence to these regulatory standards allows banks to show dedication to sustaining operations, customer service, and financial asset protection during disasters.

Financial market participants and infrastructure service providers

The modern financial system is a complex web of interconnected market participants and infrastructure service providers, including financial institutions such as:

• Banks
• Investment banks
• Broker-dealers
• Individuals

As a result, the stability of the entire financial system hinges on the ability of each participant to maintain their operations during disruptions.

In this context, BCP in banking must consider the interconnectedness of financial market participants and infrastructure service providers to minimize systemic risks.

To develop a thorough BCP, banks need to gauge the prospective impacts of disruptions on the market, along with the geographic interdependencies that shape contemporary local, national, and global banking networks. This way, their BCP can tackle the distinct challenges presented by this interlinked financial environment, allowing them to persistently serve their customers and stabilize financial markets amidst considerable disruptions.

Understanding specific disruptions to banking

A significant business disruption can take many forms. Banks must address specific disruptions, such as natural disasters, cyber attacks, and pandemics, in their BCPs to ensure comprehensive coverage and preparedness. By considering these unique challenges, banks can develop targeted strategies and solutions that address the specific risks and vulnerabilities posed by each type of disruption.

Damage from natural disasters

The frequency and intensity of natural disasters (earthquakes, hurricanes, wildfires, floods, etc.) are on the rise. While these pose a significant risk to habitat and humanity, they also cause significant disruptions to business operations, including banking. Banks, therefore, require contingency plans for physical damage, power outages, and disruptions to transportation and communication networks. 

Banks can also use financial products, such as insurance, to address the financial risks of natural disasters. By having comprehensive plans in place to address the unique challenges posed by natural disasters, banks can minimize the impact on their customers and ensure the stability of the financial system during such events.

Cyber attacks and technological failures

Cyber attacks and technological failures also pose significant threats to banks, as they can lead to data breaches, system outages, and financial loss. According to the IMF:

“The financial sector is particularly vulnerable to cyber-attacks. These institutions are attractive targets because of their crucial role in intermediating funds. A successful cyber-attack on one institution could spread rapidly through the highly interconnected financial system.”

To address these threats, banks must implement robust cybersecurity measures, such as firewalls, encryption software, and endpoint protection, to safeguard their IT infrastructure and systems from malicious actors.

In addition to cybersecurity measures, banks must also invest in data backup and recovery solutions to ensure the availability of their data and systems in the event of a cyber attack or technological failure. These solutions, coupled with comprehensive incident response plans, can help banks minimize the impact of cyber-attacks and technological failures on their operations and customers.

Pandemics and staff inaccessibility

Pandemics (such as the COVID-19 outbreak) present unique challenges for banks, as they can lead to staff inaccessibility, remote work requirements, and health and safety concerns. To address these challenges, banks must establish plans for remote work, alternative staffing arrangements, and health and safety protocols to ensure the well-being of their employees and customers during such events.

Prioritizing employee well-being and safety allows banks to:

• Foster a supportive work environment
• Enable employees to perform optimally during disruptions and emergencies
• Maintain the continuity of critical functions and services
• Ensure that the bank can continue to serve its customers
• Maintain the stability of the financial system during pandemics and other staff inaccessibility events

---

---

3 key components of a bank’s Business Continuity Planning process

So, how do you stay ahead of these disruptions? A well-rounded bank’s BCP consists of three key components: 

1. Risk assessment and management
2. Technical recovery solutions
3. Human resources and training

Each component plays a crucial role in ensuring the bank’s ability to withstand disruptions and continue providing essential services to its customers. Let’s look at each in more detail.

1. Risk assessment and management

Risk assessment and management is the first step in developing a comprehensive BCP for banks. It involves:

• Identifying potential threats and vulnerabilities, such as data loss, regulatory non-compliance, reputational damage, financial risk, and human-caused disasters
• Implementing measures to mitigate their impact on operations
• Ensuring the continuity of critical functions

An efficient risk management process also requires frequent BCP updates to accommodate changes in the bank’s operations, threat scenarios, and audit suggestions. Continuous risk assessment and management allow banks to:

• Keep their Business Continuity Plans updated
• Ensure their plans are efficient in handling possible disruptions
• Minimize the effect on their customers and financial system stability

2. Technical recovery solutions

Technical recovery solutions focus on the restoration of IT infrastructure and systems during a disruption, ensuring the continuity of critical functions and contributing to business recovery. In today’s digital age, the resilience of a bank’s IT systems is of utmost importance, as even minor disruptions can have far-reaching consequences for the bank’s operations and customers.

To address this challenge, banks must invest in robust technical recovery solutions. These solutions not only help banks restore their core systems and data following a disruption but also provide the necessary tools for monitoring and managing their IT infrastructure, ensuring the highest level of resilience and preparedness.

3. Human resources and employee training

Human resources and employee training are essential components of a bank’s BCP, as they ensure that employees are aware of their roles and responsibilities during a disruption and can effectively execute the plan. Training should incorporate emergency response drills, BCP procedure overviews, and periodic plan reviews to keep employees current and conversant with the processes.

Moreover, banks must invest in the well-being and safety of their employees, as they are the backbone of the organization. By providing access to mental health support, flexible work options, and clear health and safety guidelines, banks can create a supportive work environment that enables employees to perform at their best during disruptions and emergencies.

The importance of Business Impact Analysis (BIA) in banking

Business Impact Analysis (BIA) is an important aspect of BCP in banking, as it helps banks identify critical functions, assess the potential impact of disruptions, and set recovery time objectives to prioritize resources and efforts.

Executing an exhaustive BIA provides banks with valuable insights into their operations and weaknesses, which aids in the development of targeted recovery strategies and disruption impact minimization on customers and the financial system.

Identifying critical functions

Critical business functions in banks (e.g., transaction processing or customer account services) are those that would have a disastrous effect on stakeholders or the bank if they were to fail.

Identifying these functions is crucial for determining which processes and systems must be prioritized for recovery during a disruption.

Concentrating on the most critical operation aspects enables banks to allocate resources and efforts effectively, thereby reducing the disruption impact on customers and financial system stability.

Setting recovery time objectives

Recovery time objectives (RTOs) are a key component of the BIA process, as they help banks establish the maximum acceptable downtime for critical functions. 

Setting RTOs involves assessing the: 

• Bank’s risk appetite
• Cost of downtime
• Availability of resources
• Potential impact of downtime on customers and stakeholders

Clear RTOs help banks steer recovery strategy development and ensure their readiness to handle disruptions promptly and effectively.

Examples of RTOs in banking include restoring core banking systems within 24 hours, gaining customer access within 48 hours, and resuming full operations within 72 hours. These objectives serve as benchmarks for banks to measure their progress and preparedness, helping them identify areas for improvement and adjust their BCP accordingly.

Implementing and testing a bank’s Business Continuity Plan

Implementing and testing a bank’s BCP is a structured process that involves regular maintenance and updates to ensure its effectiveness during a disruption. The process encompasses:

• Recovery strategy development
• Roles and responsibilities allocation
• Communication protocol establishment
• Regular reviews and updates to maintain an up-to-date and effective plan

BCP implementation process

The BCP implementation process begins with the development of recovery strategies, which outline the specific actions and resources required to restore critical functions and systems following a disruption. These strategies should be based on the findings of the bank’s BIA and risk assessment, ensuring that they address the most significant threats and vulnerabilities.

Once recovery strategies have been developed, banks must assign roles and responsibilities to employees, outlining their duties during disruption and ensuring that they are trained and prepared to execute the BCP, which includes the disaster recovery plan. Establishing clear communication protocols is also essential, as it enables the bank to maintain effective coordination and information sharing during a disruption.

Testing and maintenance

Regular testing and maintenance are critical to the success of a bank’s BCP, as they help identify weaknesses and areas for improvement, ensuring that the plan remains current and effective. Testing can involve various methods, including tabletop exercises, walkthroughs, and full-scale simulations. These exercises not only evaluate the plan’s viability but also assess the ability of employees and executives to handle stress and make decisions under pressure.

Alongside testing, regular BCP maintenance is vital to keep the plan updated and responsive to changes in the bank’s operations, threat scenarios, and audit suggestions. By conducting regular reviews and updates, banks can ensure that their BCP remains effective in addressing potential disruptions, thereby minimizing the impact on their customers and financial system’s stability.

Conclusion: BCP is a critical component of a bank’s risk 

By addressing potential threats, vulnerabilities, and disruptions, banks can ensure the continuity of operations, comply with regulatory requirements, and maintain the stability of financial markets. 

A comprehensive BCP encompasses risk assessment and management, technical recovery solutions, human resources, and training, as well as business impact analysis to identify critical functions and set recovery time objectives. With proper planning, communication, and regular testing and maintenance, banks can be well-prepared to face any disruption and continue to serve their customers and support the financial system during challenging times.

---