The World Federation of Exchanges Advocates Ecosystem-Wide Approach to Operational Resilience

 London, 2 October 2020 – The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs has responded to the Bank of England – PRA – FCA’s consultation Building Operational Resilience: Impact tolerances for important business services.

The WFE welcomes the emphasis placed on the importance of operational resilience within and the across the financial services ecosystem. In a pandemic environment with market volatility and atypical operational practices, it is only natural that there will be growing scrutiny on the prevention, response and recovery of financial services to operational failures. To this end, the WFE welcomes the overarching objectives of the proposals and the UK authorities’ desire for an outcomes-based approach.

Market infrastructures recognise their responsibilities as critical elements of the financial system, helping to ensure the supply of finance to real economy firms and providing a platform for investors. Accordingly, they already had developed business continuity plans, which in recent months have been executed as necessary in response to the pandemic. This has underpinned what have proved to be record volumes of trading. These investments in operationally resilient resources and practices supported a well-functioning marketplace with fair and orderly markets operating to the benefit of their local economies.

The WFE recommended:

  • The importance of UK regulatory authorities and, more broadly, international standards-setting bodies (ISSBs) considering operational resilience in terms of the whole ecosystem, rather than just firm by firm or sector by sector.
  • The role of appropriate regulatory deference in laws and rules related to operational resilience to avoid inadvertent fragmentation and needless differing/conflicting regulatory expectations and requirements applying in different jurisdictions which are unduly burdensome.
  • A common lexicon is also important so that there is consistent agreement on the foundational aspects of operational resilience.
  • Greater emphasis could be placed on understanding how firms are setup to respond, in terms of incident management capabilities, and how entities consider and determine their approach, to novel risk management to achieve the end outcome of operational resilience – rather than over-reliance on disparate sets of scenarios devised by individual firms.
  • The papers could potentially go further to require the establishment of service-failure criteria. It is crucial, for example, to understand where a service is degraded but still operating.
  • Ensuring appropriate standards and reasonable expectations around the testing and monitoring of third-party providers by the regulated entity.