Learning a lesson

  • Hanif Barma
  • 17 August 2021
  • Blog | Regulation & Compliance | Blog

Regulation and resilience testing during the COVID-19 pandemic have led to a rethink around the importance of defining impact tolerances within organisations. Impact tolerance is about identifying potential risks, the effect they could have on any individual business and what its board is prepared to accept. A tolerance relates to something that has an impact (financial or otherwise) on outcomes – which may be time-related – and has a disruptive effect on normal operations, for example, an outage resulting in a bank’s cash points not working. 

In this case, identifying an appropriate tolerance is about the bank defining a manageable and acceptable amount of time before the cash points need to be up and running again. That might be two hours, or it might be two days – the firm needs to set what its tolerance is. 

Once tolerances have been set, it’s important that they’re effectively tested. The pandemic, in many ways, provided the perfect opportunity for this. It’s vital for organisations to continue to self-assess, undertake the lessons learned from the past year and improve upon the way they do things.  

Many boards are thinking about this much more, focusing on the impact and not just the cause of the impact. In a sense, it is not as important now what causes the failure, but rather how companies avoid the failure or deal with disruption once it’s happened. It is about building greater resilience. 

When it comes to the response to the pandemic, we will only see the true impact as we emerge from lockdown and return to whatever the ‘new normal’ is. But, even now, there are questions about how long it will take for the new normal to emerge. It is likely look very different to what we have been used to.  

It all comes back to the importance of resilience. I often speak to my clients about their understanding of what the learning points are from the past year. It’s vital to do a comprehensive ‘lessons learned’ analysis, and it’s something that regulators would expect.  

Organisations need to look at the pre-pandemic scenario and the post-pandemic scenario and identify where the best practices lie, and they need to understand what changes have been made that they want to hold onto. There were important practices and ways of working before in financial services – face-to-face contact with customers and colleagues being one of them – but the shifts to online contact and collaboration provide alternatives, choice and greater accessibility.  

Future business success and achieving the right outcomes is about identifying the best combination of the two scenarios and bringing them together effectively.

Read more from Hanif Barma in ‘Stressed out: Regulation and resilience testing’ on pages 17-19 of the Spring 2021 issue of Chartered Banker magazine.