Emerging risks – especially in a crisis

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I thought I would follow up my column in the last edition, Business as usual [‘BAU’] – even in a crisis’ with what I consider a natural follow-on, ‘Emerging risks – especially in a crisis’.

While BAU is, of course, important as clearly firms need to make sure they survive through any crisis; it is equally important to keep an ongoing focus on emerging risks. The risk of not keeping an eye on emerging risks is that an unconsidered risk will take out a business while it is looking the other way. The simple fact of life is businesses that want to survive to another day need to consider the future world that they operate in.

I wonder how many regulated firms hold a risk register that is reviewed regularly and if they do whether the review specifically articulates emerging risks and how those risks can be mitigated. Clearly, larger firms will have such documents (and teams who produce and review them), but what about small and medium sized enterprises [‘SMEs’] – no firm is too small to devote regular time to such planning activities. The fact that a lot of business activity around the globe is on pause doesn’t mean firms can be complacent, in fact, as businesses press the reset button now is the right time to contemplate future causes of potential business shock.

Such changes mean that a new list of emerging risks needs to be considered

While operational resilience has been high on most regulated firms’ agendas in recent years the mere fact that they have continued to trade through 2020 suggests that their business continuity plans worked. However, the last six months has meant that certain structural changes are likely to become ‘baked in’ and that new working practices that could have taken decades to change have happened overnight. Such changes mean that a new list of emerging risks needs to be considered. Each item will have many facets.

As I write this article, it is looking more likely that staff will not be back in offices, in the numbers they were in the past, for some considerable time. This brings a whole host of emerging risks. Managers can no longer directly see what is going on in the department as staff who are in contact with customers are spread around literally thousands of locations. While at the same time, regulators are demanding reassurance that processes, and procedures are being maintained. There is also is a growing requirement to ensure that consumers are not being disadvantaged. Frankly, the longer this situation goes on the less patient regulators will be with firms who do not adapt to the situation and maintain high levels of appropriate consumer outcomes or procedural robustness and data security.

So, the way forward is clear, risk and compliance teams need to take a fresh look at risk registers and consider new or alternative risk mitigation measures. The FCA has been on the front foot in ensuring that customers are protected, and that markets continue to function well, with detailed guidance being issued over six months ago, right at the start of the pandemic. Anyone in doubt in respect of regulated firms’ responsibilities, should consider re-visiting https://www.fca.org.uk/firms/information-firms-coronavirus-covid-19-response where the FCA helpfully consider firms’ responsibilities and issues in respect of all regulated markets.

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