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Why financial sector contingency planning is required to avert failure

Contingency planning is essential in the financial sector since the industry is vulnerable to a variety of risks, including market volatility, economic uncertainty, cyber-attacks, natural catastrophes, and other unforeseeable occurrences that might interrupt operations. Risk management relies heavily on contingency planning. The purpose of contingency planning is to proactively respond to anticipated risks that affect a company's operations, finances, reputation, or other problem areas.

Risk management strategies are established and implemented to ensure regulatory compliance, and to mitigate any regulatory hazards. In the wake of the COVID-19 pandemic, political warfare and economic uncertainty, contingency planning within risk management is not only timely but critical for all organizations to ensure they have a business continuity plan in place. Some of the recent events that triggered South African businesses to execute their contingency plans include the

    • The Global Pandemic (Covid-19)
    • 2021 July unrest
    • 2022 Floods
    • 2023 National Shutdown
    • Energy crisis

Contingency planning

After the occurrences stated above, businesses around South Africa quickly implemented their contingency plans to maintain company continuity with little disruption. The Financial Industry Contingency Forum (FSCF) was established in 2005 by the South African Reserve Bank (SARB) as a collaborative forum for financial industry stakeholders to coordinate and improve their contingency planning activities. The FSCF includes representatives from the SARB, the National Treasury, the Financial Sector Conduct Authority, and various financial institutions and industry associations.

Overall, the FSCF is an important part of South Africa's financial sector stability framework and contributes to the industry's preparedness and ability to respond effectively to a wide range of potential risks and issues.

As the pandemic impacted every aspect globally, an opportunity presented itself to document the lessons learned for consideration by the FSCF, making this a blueprint for businesses to be innovative with their contingency plans.

The natural disasters we experienced, such as the floods and the earthquake in Turkey, were a clear indication that climate risk is one of the emerging risks globally. Climate risk has the potential to create major business disruptions, especially around assets, investments, and infrastructure held by businesses. Therefore, it is imperative that businesses also take climate risk into consideration when planning their contingency plans, as failure to do so may have dire consequences, especially around business operation.

One more crucial factor that businesses need to implement is assessing whether the plan is effective. This may involve running simulations or conducting drills to assess the response strategies and communication protocols.

The continuous energy crisis currently faced by the country is another present scenario that requires businesses to rethink their contingency plans to ensure that they remain relevant and effective. Businesses need to have plans to keep the power on to ensure that basic services are still conducted with minimal business disruption during this time.

According to the South African Reserve Bank’s latest financial stability review, "insufficient and unreliable electricity supply is likely to threaten the viability of some corporations, especially small and medium-sized enterprises, for the foreseeable future, with losses potentially spilling over into the financial sector." So as part of the business continuity strategy, Sasfin Wealth has issued some of its critical staff members with essential tools of the trade that could be used during loadshedding; alternatively, staff members can also make use of any of the Sasfin buildings across the country to ensure business continuity during this time.

The contingency strategy is aimed at assuring that we as an organization are operationally resilient through contingency plans that allow us to recover all our critical business services, such as trading, payments, etc., from any major unplanned business disruption. As a business, we further need to ensure that this is performed with minimal client impact and that the company’s reputation is still maintained.

The contingency strategy also focuses on ensuring that the roles and responsibilities are clearly defined and that the operational resilience governance structures are in place. This is aligned with the recovery and resolution planning, which is clearly defined in the Business Impact Assessment documents (BIA). As the famous saying goes, failing to plan is simply planning to fail.

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About the Author

Tebogo Moyo
Risk Manager, Sasfin Wealth

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