Operational Risk
In this final video of his series, Paul Rosen uses COVID-19 as a case study to explain how the operation risk cycle is applied in practice.
In this final video of his series, Paul Rosen uses COVID-19 as a case study to explain how the operation risk cycle is applied in practice.
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5 mins 49 secs
The emergence and rapid progression of COVID-19 had a global impact on markets and presented a considerable threat to financial institutions’ operations. It is vital to review the timeline of the disease and the steps, actions taken with regards to the operational risk cycle to understand how risk posed by such events can be mitigated better in the future.
Key learning objectives:
Understand how operational risk cycle was applied during the COVID-19 pandemic
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In early 2020, as COVID-19 started its rapid transmission, there were a lot of assumptions around the scientific aspect of the disease. Hence, the range of controls available to different countries were often incorrect. It was especially difficult for financial institutions to respond during this early phase as the risk posed first needed to be identified then evaluated, then mitigated and then monitored. Whilst some East Asian financial institutions had plans for a SARS style threat, however for most other institutions resilience to such events were small or often missing.
Typical business continuity plans involve the following processes:
Even institutions that had plans, either through past experience or via scenario testing often found that they were inadequate or insufficient, especially with the quickening pace of the pandemic, the extensive government interventions in financial and non-financial spheres and employee and other stakeholder responses.
On the 7th February 2020, UK government and its various departments said the following:
Risk evaluation was difficult due to mixed messages and frequently changing rules. Eventually, with more information on the risk of COVID-19, financial institutions coalesced a view that this was serious and a major threat to business operations. The pandemic also had heightened existing residual risks. As the risk profile changed, the risk evaluation process concluded that COVID-19 was a severe threat. This meant the risk response phase accelerated and resulted in a prioritisation of COVID-19 actions above other business-as-usual needs.
These assessment and mitigation steps allowed the risk assessment cycle to revert to a more business as usual approach, returning COVID from being the top risk, to being a risk under management.
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