As we've seen over recent months, each of these authorities is issuing consultations, responding to consultations and making speeches on opportunities and threats posed by developing technology. These issues are gaining growing prominence in annual plans. I don't think that a week goes by without a regulator commenting on data, consumers, innovation and competition. It feels like things are moving fast. Whilst legislators may be accused of not keeping up to date with technology, I don't think we can say that our regulators are sitting in a land of cotton wool.
It's all very nice to say look how far we've come: what great innovation. What happens when things go wrong? Resilience seems to be the word of the hour. Whether it's personal resilience or operational resilience, break down in the financial services sector is a really serious matter. There has been speculation in the media that this discussion paper has been prompted by the recent events at TSB Bank plc. Reading through earlier papers, press releases and speeches, I think the regulators have been gearing up for a paper like this for some time.
I would recommend that everyone read this discussion paper. The far reaching implications of financial services touch every aspect of life. If you don't want to read the 46 pages, the infographics are worth a look. They encapsulate the messages that don't quite jump off the page in written form.
The idea of six degrees of separation is well known and well trodden. In the digital world this idea comes to life very quickly. People are connecting in a faster way. They're also connecting with their services in a different way and those service are connecting with other services. The connection doesn't stop at a traditional land border. These connections span the globe. Our financial services sector doesn't just sit in the UK. It spans the globe and we are impacted by what happens internationally. The regulators are acknowledging that and advocating common standards to help regulatory co-operation. As we saw with the Financial Crisis of 2007-2008, there is undeniable butterfly effect when things go wrong in financial services.
With so much change and talk of disruption events, what are firms to do? The regulators suggest that they accept there will be disruption. If firms accept that these things will happen they are more likely to have operationally resilient systems and processes. They suggest that the best way to do this is to focus on business services rather than individual systems and processes. If you build in certain tolerances you should be able to absorb shocks better. That all sounds great. The realities of moving away from legacy systems and workarounds is another matter. Even moving to a shiny new system can have unintended consequences. The regulators ask whether a move to focusing on business service continuity would constitute a significant change. I have no doubt that for many it would. It's a change that is necessary. Not every risk can be prevented. Often you don't know that a risk exists until it materialises. The key with operational disruption is how you react.
The impacts of the butterfly effect are more likely to be felt by consumers. In Chapter 4 of the Discussion Paper, the regulators call out the impacts on consumers and market participants. Operational disruption can have a devastating effect on the lives of everyday people and the businesses they run and work in. It’s a harm that is hard to assess but the regulators want to have a discussion on how this harm can be more actively assessed. They also want to discuss the role of communications plans in mitigating consumer harm.
Responses to the paper are to be made by Friday 5 October 2018. Responses are welcomed from consumers, market participants, industry bodies, auditors, specialist third-party providers, professional advisers, regulated firms, financial market infrastructures and other regulators.
The FCA "are encouraging responses to questions posed in the DP from all types of firms and FMIs, trade associations, consumer bodies, individuals and businesses as users of financial services, and especially those who have suffered harm from disruptive events."
The Bank of England state that "feedback is welcomed from all parts of the financial sector, as well as from consumers, market participants and other stakeholders, including other regulatory organisations."
Regardless, if you're a consumer and you want to engage - you've well and truly got the nod.