Page 33 - Banking Finance April 2022

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Thus, it is important for every organization to take note that, the longer it takes to move to green scenario the
the pace of environmental changes and technological severity or the impacts of incidents like the hurricane,
development is faster than development of risk storms, floods will continue to increase over time leading
management tools which makes the task of being resilient to economic damages as well.
more pertinent.
Thus, organizations will be faced by either the transition
risk or physical risk. The Pacific Gas &Electric case is a first
Current scenario in Financial sector:
climate change bankruptcy declared in 2019, where the
To keep pace with the technological changes, increased company was held liable for non- adherence to the laid
consumers demand for easy and instantaneous access to the down standards ( as the fire was caused due to failure of
services, shift to fintech (financial technology) has made it a transmission line for which standards were not adhered
necessary to outsource activities and increased reliance on to). Dam collapse in Brumadinho (Brazil), in 2019, is one
technology. The topmost Operational risk being IT of the worst industrial accident as tons of toxic mining
Disruptions and Data Management. waste flowed out in the areas nearby (Normally these
mining dams are built of mining waste itself). The company
Some of the major incidents which have had a
is facing charges of murder along with environmental
huge impact not just in financial terms but non- charges as it failed to report warning signs.
financial: Y Current outbreak of the corona virus: The impact of
Y Banking information - technology (IT) failures like that COVID 19 has led to less in-person interaction which has
of TSB Bank when it separated from Lloyds Bank and increased the pace of the shift to digital platforms in
moved on to a new platform. The customers were all areas and has increased the demand for digital
unable to carry online transactions and wrong balances financial products.
were being reflected in their accounts. Thus,
organizations undergoing the process of mergers and In this background it needs to be assessed whether financial
acquisitions can face such a situation. Even within the firms are prepared and equipped, to deal with these
organization if a new platform is launched for ease of changes they arise. In other words, are they resilient?
functioning or to enhance the customer experience it
is very important that it is approved by the appropriate Requirement to Build Operational
committee and put through use test so that the Resilience:
transition is smooth.
Every incident should be assessed from two angles that is
Y Ransomware attack: Such attacks have brought the the strength as well as weaknesses. COVID 19 has made it
biggest and the best of organization to a standstill. A necessary to relook at operational resilience standards and
ransomware attack can lock a computer, encrypt identify critical/important business services, employees that
important files and the attacker seeks ransom for support these important business services, and ensure that
granting access to your system and files. they can safely resume their duties. In view of the prevailing
Y Climate change: Climate action failure and extreme circumstances the Basel Committee on Banking Supervision
weather have been identified as the top global risks. It (BCBS) in August 2020 issued a consultative document on
is a growing concern for not only governments but Principles for Operational Resilience seeking comments from
businesses too. The unchecked growth through organizations. The basis of this document is in the Principles
businesses is one of the reasons for the extreme shift of Sound Management of Operational Risk (PSMOR).
experienced in the climate. The transition has been far
too slow than desired. Climate action required bringing These two documents have been designed to work together
down the carbon emission and temperature to 1.5°C and they draw upon existing guidance and current practices.
whereas globally we are still at 3°C. In the given The final guidelines are expected to be issued soon and will
circumstances if governments and organizations decide serve as an integrated framework. BCBS in its document
to go for sudden transition it may have impact on defines Operational Resilience as "the ability to deliver
certain industries but the economic damage would be critical operations through disruptions" The document brings
less as the long-term impacts can be limited. However, about the key features of broad areas:

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