Distributed ledger technology could help with damage limitation in the event of service disruptions, as the paper ‘How to get a head on operational resilience’ discusses.
In this period of disruption, with new regulation, technology, customer requirements and the occasional curveball like Brexit, operational resilience is getting a significant workout.
It’s essential to be able to rapidly adapt and respond to these threats and demands with a limited impact to the business, and with a scope that spans people, process and IT.
With the increasing intensity of cyber-attacks and the prevalence of regulatory fines, operational resilience is essential. Indeed, an IBM study has shown that 40% of organisations in North America have had to carry out their disaster recovery plans in the recent past.
But is it possible to transform operational resilience from a begrudgingly invested-in damage limitation measure, to an opportunity for banks to take a leading and differentiating role in an interconnected environment?
The recent paper on operational resilience, produced by Finextra in association with IBM, explores this potential and considers how new technologies, like blockchain, could revolutionise this space.
Distributed ledger-based systems should be more resilient to systematic operational risk because the system as a whole is not dependent on a centralised third party. With many contributors, and thus back-ups, the ledger has multiple copies which should make it more resilient than a centralised database. And the level of transparency in recording transactions could ensure that if a cyber-attack does occur each participant’s balance is traceable.
However, much still needs to happen before blockchain enters mainstream use in financial services. As Blythe Masters, CEO of blockchain leader Digital Asset Holdings, asked at a recent London conference, “Why isn’t it happening more quickly? It’s difficult. Legacy systems are gigantic. They are processing trillions of dollars notional daily, and if they fail it’s catastrophic. This will be like changing the wheels on a bus on a fast-moving highway.”
In the meantime, technology complexity and interconnectedness are creating an operational resilience headache today, and this is likely to continue into the future – especially as experience suggests that new layers of technology rarely eliminate earlier ones, rather they add further to the stack.
The paper outlines how, given the growing demand for 24/7 ‘always on’ services and an increasingly stringent regulatory approach to operational failures, the importance of operational resilience in the financial industry is greater than ever – and explores a number of steps financial institutions can take to both mitigate the risk and turn investment in operational risk into a driver of competitive advantage.
The full report is available for download now.