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Law360, London (August 7, 2020, 12:48 PM BST) -- Global banking regulators are proposing an update to principles drafted in 2003 to ensure that lenders have the tools and staff they need to remain resilient and withstand disruption to the market during the COVID-19 pandemic.
The Basel Committee on Banking Supervision, which writes standards for banks worldwide, said that financial institutions should ensure they have defenses to protect themselves against shocks. They should have adequate budgets and trained staff and a culture of risk management within their organization.
The committee — central banks and bank supervisors from 28 jurisdictions — said that coordinating operational resilience at banks can prevent market shocks from a global hazard. The updated guidelines, which were penned in 2003, aim to enhance the ability of banks to withstand challenging circumstances and recover from them.
"The committee is of the view that operational resilience is also an outcome of effective operational risk management," the group said in a consultation published Thursday. "Activities such as risk identification and assessment, risk mitigation...and ongoing monitoring work together to minimize operational disruptions and their effects when they materialize."
Banks have until Nov. 6 to respond to the committee's consultation. The group of supervisors said that the updated principles will align with its recently finalized Basel III operational risk framework.
The package, which has been delayed for a year because of the pandemic, is designed to boost the sector's ability to absorb shocks arising from financial and economic stress and improve risk management, governance and transparency.
The committee said it has become more important in recent years to keep banks resilient in the face of operational threats as the threat of cyberattacks, healthcare crises and natural disasters grows.
The coronavirus pandemic has highlighted the need for banks to address operational risks and set up additional safeguards because they play a critical role in the global financial system. Operational risks materialize when businesses have inadequate or failed internal processes and people.
Bank directors should establish strong frameworks for managing risk and set standards and incentives for staff, the group of regulators said. Senior managers should be held responsible for implementing the processes, as well as assessing risk.
Lenders should also implement robust governance of their information and communications technology and set business continuity plans, the committee said.
The Basel Committee said its guidance will help banks outsource their operations safely, plan for continuity in case of a crisis and manage risks. The framework will be consistent across the globe, the group said, preventing conflicting and duplicate rules.
--Editing by Ed Harris.
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