Operational Resilience

With the consultation phase on Operational Resilience issued by the Bank of England, PRA and FCA coming to an end on 3rd April, the fallout from the current Coronavirus epidemic is sure to have a significant influence on what any final regulation might look like. We consider some ways the financial services industry is being impacted.

Service Continuity

The ability to provide an uninterrupted service to customers, the cornerstone of the Operational Resilience consultation, is being stretched in many areas. There is no doubt that home working, which is commonplace in most firms these days, has lessened the impact, but the almost universal approach currently being adopted presents new challenges. Roles previously considered unsuitable for remote working such as customer contact centres are now moving into this space for the first time. The provision of IT hardware, data security and staff management are just a few of the headaches currently being faced as employers move to protect staff and minimise the spread of Covid19. Is this the beginning of a new flexible approach to the workplace if we can ensure the quality of consumer service doesn’t diminish?

Fund Pricing

Fund pricing is another area which has been significantly impacted by recent markets. Fair value pricing has become a common occurrence and NAV movement thresholds are being breached on an almost daily basis. The resultant additional workload has put a considerable strain on providers with staff working hard to ensure fund prices are issued accurately and service level requirements are met. Tolerances will be reviewed daily to ensure efficiency within the process however this will not take away the requirement of ensuring pricing accuracy at security level. Additional ACD oversight is expected.

Risk Management

Volatile markets and huge falls in asset values has mean that firms are currently facing risk on several fronts with multiple strategies being employed simultaneously to try and mitigate these. Liquidity monitoring for funds will be a key focus over this period, with significantly volatile markets and a rush to redeem into safe havens. The regulators have been focusing on liquidity measurement and testing and it would be no surprise if additional scrutiny on how controls are performed become an area of focus. Firms should consider the frequency of their stress testing and consider their alignment with the IOSCO principles.

Fee Revenues

On the back of significant market falls Asset Managers are bracing themselves for a considerable drop in fee revenues. With margins already squeezed in an environment where downward fee pressure and rising costs have already taken their toll, the impact will undoubtedly hit some firms hard. Subsequently it’s likely that consequences will be felt downstream with business development initiatives and noncritical project budgets downsized, postponed or even cancelled.

So, it seems the industry has its work cut out trying to minimise disruption to investors, protecting their staff while also playing its part in slowing the spread of this global pandemic. But once the dust has settled and there has been time to reflect, we will know how resilient we really are and what work there is still to be done.

If you would to discuss any of the topics highlighted, please get in touch with your relationship contact, email enquiries@devlinmambo.com or call 0131 235 2646.