Compliance in Focus – Operational Resilience
The Central Bank held two intermediary roadshows in Dublin and Galway on the 23rd and 24th of November respectively. The Central Bank outlined that its key focus areas in respect of intermediaries for 2024 will be:
- Annual return- on time submission/ PII in place, (Firms having a positive financial position)
- Professionalism standards (Minimum Competency & Suitability in particular)
- Risks associated with commissions and disclosures.
- Changing operational landscape (including consolidation/ MGA activity)
- Operational resilience.
This article is going to focus on the topic of operational resilience and its relevance to the intermediary sector. This is particularly important given that it was indicated at the roadshow that the Central Bank will be undertaking themed inspections in respect of operational resilience in 2024 and that whilst this inspection would be aimed at larger intermediaries, it is important for intermediaries of all sizes to have effective operational resilience frameworks and controls in place.
In December 2021, the Central Bank published its finalised Cross Industry Guidance on operational resilience for regulated financial service providers outlining that the application of the guidance should be at the latest within two years of it being issued. The Cross Industry Guidance is built around three pillars of Operational Resilience:
- Identify and Prepare
- Respond and Adapt
- Recover and Learn
The Central Bank considers operational resilience to be the ability of firms, and the financial services sector as a whole, to identify and prepare for, respond and adapt to, recover and learn from an operational disruption. The importance of this, is to ensure continuity of service and mitigate risks to consumers where there is a disruption to the activities, services and functions of the firm. Disruptions may take the form of system failures, cyber-attacks and natural disasters such as flooding/fire.
All firms, from a sole trader to a large firm should have a plan in place on how it will communicate clearly and in a timely manner with affected consumers, minimise the negative impact of incidents by restoring normal service operation and how it will ensure continuity of service with no material adverse impact for consumers. The scale and depth of detail of this plan will depend on the size of the firm and the Central Bank has confirmed that a proportionate approach applies.
The Covid-19 epidemic was a significant test of the operational resilience of the intermediary sector. Brokers quickly had to adapt to a new way of providing their services to ensure continuity of services to their clients. Intermediaries as acknowledged by the European Insurance and Occupational Pensions Authority (EIOPA), continued in very difficult circumstances to support, assist and enable consumers to manage their risks by providing protection against uncertainties. Despite the unprecedented circumstances Brokers found themselves in, they proved to be both financially and operationally resilient.
Firms should have a formal, focused, and coordinated approach to responding to incidents, the plan should identify and appoint a person within the firm who is responsible for the management of the incident (if the firm is a sole trader/single director firm, they will be responsible) and provides a roadmap for implementing the incident response capability. The plan in place should document how the firm will communicate clearly and in a timely manner to affected consumers where a disruption occurs, minimise the negative impact of incidents by restoring normal service operation and how it will ensure continuity of service with no material adverse impact for consumers.
Operational resilience in a small firm becomes especially important when a key person, such as the owner or key executive, passes away unexpectedly. The loss of a key individual can create significant disruptions, affecting leadership, decision-making, and overall business continuity. Small firms should consider what would happen if such a situation arose, succession planning is essential, involving the identification and preparation of potential successors within and outside the firm. Establishing clear and documented processes for key tasks and decision-making can also mitigate the impact of the loss.
Brokers Ireland has developed templates in respect of operational resilience which can be personalised to your firms’ circumstances. If members have any queries on any of the templates and guidance documents which are available in the compliance section of the Brokers Ireland website, please feel free to contact the compliance unit on 01 661 3067 or email email@example.com