After 9/11, one might presume that US financial institutions had put continuity plans in place. Until the power went off…
The recent power failure in north eastern America has been attributed to an aged national grid that, until the date of failure, had been working fine. The catastrophe serves as a stark reminder of the need for a strong and fail-proof business continuity plan. Every bank and financial institutions should take heed.
The problem stems from an ‘if it’s not broken, don’t fix it’ mentality that is not uncommon in the financial services industry. But it is clear that legacy systems present significant operational risk, and updating critical systems and infrastructure should be top priority.
Estimates by research company Gartner that two out of five enterprises that experience a disaster go out of business within five years highlight why banks must take operational risk issues more seriously. Then, there is the Basel II Accord, which will refocus banks’ attentions on such dangers.
It is imperative to have a business continuity strategy that takes into account “unthinkable failure scenarios”, as one expert puts it. After all, US banks have been subject to two such unthinkable events in the past two years.
The way business is developing – with the interconnectivity and dependency of organisations increasing – the pressures can only increase. Not only are banks required to mitigate systems failures, they must also protect against virus and worm attacks for the loss of intellectual data. There are indications that the UK’s Financial Services Authority consultation paper CP142 will emphasise the need for a holistic, end-to-end approach to business continuity, requiring banks to assess the business continuity plans of their suppliers, partners and vendors as part of the governance process.
The good news is that there seems to have been some lessons learnt from September 11. Network provider NYFIX reported its financial network services and trading systems were fully operational during the blackout. The US electronic payments association, Nacha, also reported that automated clearing house payments processing occurred without a hitch.
Others need to study their form and follow their example.
