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No Time For Downtime

15 October 2020

Operational resilience is at the centre of the Financial Conduct Authority’s response to the COVID-19 pandemic. As the UK went into lockdown in March, it urged the businesses it regulates to revisit their contingency plans for unexpected and disruptive major events – the focus is on protecting customers and ensuring market stability.

However, while the COVID-19 crisis demands urgent action on contingency planning, operational resilience is an ongoing need. On 1 October, the FCA concluded its consultation on new operational resilience regulation – firms will have to meet new requirements by the end of next year. Moreover, this is an issue that goes beyond financial services.

The pandemic should be a catalyst for all organisations, regulated or not, to review resilience and business continuity.

Back-up services for lenders

In the regulated space, the credit services market faces particular scrutiny. With the UK economy in a downturn amid the pandemic, and as the Government introduces lending schemes on an unprecedented scale, there is huge pressure to ensure disruption can be minimised in the event that a lender ceases to trade or is forced to withdraw from the market. 

In recent months, EQ Credit Services (EQCS) has seen a significant increase in inquiries about its standby services. Under these agreements, EQCS steps in immediately where a lender is unable to continue, in order to administer the loan book. The objective is to ensure the funders continue to receive a return of their monies while borrowers see no adverse impacts on their accounts.  

No Time For Downtime Article Quote 1

This upsurge in interest reflects the fact that investors in lenders, including organisations taking part in the Government schemes, are anxious to ensure they are protected during this period of elevated uncertainty. Regulators are also determined to ensure markets and consumers are protected.

Choosing a standby service provider is therefore a vital element of resilience planning for lenders. Above all, investors want to be confident that providers can take operational control without delay; particularly in the current fast-moving environment. EQCS’s unique approach enables them to work directly with the lenders’ own platforms providing comfort and speed of invocation should plans need to be actioned.

More than this, lenders should have an ongoing relationship with their standby service providers, rather than simply assuming the back-up process will work in the event of a problem. For example, regular testing of systems and data compatibilities and processes will give lenders – and their investors – much greater confidence that there is no prospect of disruption or financial loss.

Payments provision

Many organisations are also worrying about the potential impact of the pandemic on their business payments. EQPay has seen increasing anxiety amongst organisations that have not previously looked at their payments arrangements through a business continuity lens. 

Some payments providers face a range of COVID-19 challenges. Most obviously, consumer spending has slowed dramatically during the pandemic. This potentially deprives retail-focused payments companies of revenues, squeezing their margins. Many providers have also been obliged to change the way they operate, introducing new processes and charging structures to support their customers; fraud risk is also elevated. 

Providers lacking strong funding and reliable balance sheets – including some disruptive new entrants to the sector – could even be forced out of business or to pull out of non-viable services. As in credit services, organisations therefore need to have back-up plans for their payment arrangements, both domestically and in international markets. Above all, can staff and former staff now drawing occupational pension benefits be confident that the income they rely on will continue to arrive on time – and that they will receive the right amounts? 

Organisations that have not previously thought about payments as part of their business continuity planning, now need to ensure they have contingency plans in place – including arrangements with a back-up provider. 

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This imperative reflects organisations’ duty of care to their employees and to their pensioners. Clearly, there is no good time to be paying salaries or pensions late, but doing so during a global pandemic would be just about the worst moment imaginable to suffer this problem. 

In addition, organisations may even find themselves facing legal problems in such situations. Pension scheme trustees, for example, have fiduciary duties towards scheme members, including pensioners in receipt of benefits, that leaving people without income could potentially breach. Staff may seek to recoup costs incurred because their salaries were paid late or in the wrong amount. 

The appointment of a back-up, well-established payments provider is therefore an essential element of many organisations business continuity planning. This means having an alternative provider in place that can immediately swing into action in the event of a failure in the incumbent payments firm. 

That requires more than simply designating a back-up. To be confident that an alternative provider will be able to step in without delay or disruption, organisations will need to go through the sort of onboarding process they would undertake if they were appointing the provider for real. 

That means setting up the right accounts through which to transfer payments, sharing data with the back-up provider, to ensure it can work with your formats and structures, and assessing all other operational requirements. It will be important to carry out test runs and simulations so that there are no surprises should the new arrangement be called upon in anger. 

International payments require particularly close attention, both to ensure any back-up provider has the capabilities to manage payments in all territories required, and to understand their processes, given the different requirements of banking systems in jurisdictions around the world.

No Time For Downtime Article Quote Lisa Cowan

 The reality of switching to a back-up payments provider is that time will be of the essence. It is even possible that organisations may only discover a problem with their incumbent providers when payments begin to fail. In which case, the question of how quickly a back-up provider can step in and get up-and-running is absolutely crucial – for both domestic and international payments. Organisations should know the answer to this question well before an emergency occurs. 

Lisa Cowan, Directory of Growth Strategy, EQPay

Act now, not later

Operational resilience means having back-up plans in place even though they may never be needed. Rather than scrambling to solve a problem when it occurs, organisations should know in advance how they will manage any given crisis. This applies with credit services, with payments – and with other key operational imperatives too.

Don’t leave it too late to focus on business continuity. The speed with which events are moving in this pandemic has the potential to expose the vulnerabilities of under-prepared organisations very quickly. But with contingency planning and back-up or standby providers in place, organisations will remain resilient. 

6 Critical Factors To Consider When Planning Your BCP



The most important business services and how much disruption could be tolerated in what circumstances



The systems and processes that support these business services



How the failure of an individual system or process could impact the business service



Using scenarios and by learning from experience, that resilience meets the firm’s tolerance



In ability to respond and recover from disruptions through having appropriate systems, oversight and training



Timely information to internal stakeholders, supervisors authorities, customers, counterparts and other market participants

Watch EQ Credit Services' MD, Richard Carter 'Increasing Resilience in FinTech' webinar with FinTech North.

An insightful and relevant conversation around the reality of investing in back-up services, and how important this is now more than ever for operational resilience.

Talk to us today about your standby and backup servicing requirements.

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