Managing risk through technology and creating a resolution plan

Managing risk through technology and creating a resolution plan

By Candice Nonas, Managing Consultant, RGP.

At the Recovery and Resolution USA conference next week, you’ll be the conference host, leading
panel discussions and speaking on recovery plans and technology solutions. What are the two or three
key points that you will discuss?

Even though resolution planning has come a long way since the first plans were submitted to the
regulators in 2012, there are still some operational risk issues that remain for foreign and domestic
banks. One thing that we will discuss are those outstanding issues. Next there is a big opportunity for
technology to play a major role in running a resolvable bank. Bots, artificial intelligence and robotic
process automation are already being deployed successfully, and we will take a look at those advancements. Finally, there are areas where banks can sharpen their pencil on improving the detail in playbooks and preparing themselves for the onsite exams around resolvability.

Why is resolution and recovery planning so critical for the financial services industry?

Humans learn from experience. Look at technological advances that have been made in construction
and building materials as a result of storms. It doesn’t mean that we have prevented storms from
coming; it just means that we are going to be better prepared and suffer less loss and damage with
every subsequent storm. It’s the same thing with the financial crisis and resolution planning. Now
admittedly not all banks need the same amount of regulation and that should be based on complexity
and size; requirements need to be commensurate to the risk that the bank or class of banks poses to the

What additional considerations must international institutions plan?

International banks are a special case for a number of reasons. The largest foreign banks that the United States has deemed systemic have put an intermediate holding company in place which helps to facilitate U.S. regulators’ ability to capture assets and protect the U.S. economy in the case of resolution. However, the group parent still controls a lot of the services provided and day-to-day activity from abroad. Also, the banking and resolution laws of the home country are not written in favor of the United States. Therefore, the regulators have to work together to mitigate risks, which is something that an individual bank is not capable of addressing. Finally, in some countries, the way the laws are written on the books is not actually how they play out in court. This is a risk that banks have to consider and be prepared for, and I think it’s being over looked.

Looking five years into the future, what challenges must banks and financial institutions be prepared
to address?

That is an interesting question given the current move in Washington to roll back certain Dodd
Frank provisions that impact the banks and resolution planning. I’m not terribly worried about the
largest, most systemic U.S. banks. I think they have experienced a great deal of benefit as a result of
stress testing and resolution planning. Dodd Frank Act forced them to revamp their infrastructure, and in doing so they discovered disjointed processes and arcane methodologies which were upgraded. Parts of the infrastructure that would lead to expensive and damaging loss in a stress event were redesigned and technology was upgraded all over the bank. For example, resolution planning forced banks to review all of their contracts and change the language to include terms and clauses that favor resolvability. We saw during the crisis that banks didn’t even know what was in some of their contracts until they got to court and lost a lot of money.

How do you spend your down time when you’re not helping your financial institutions mitigate risk?

I like to combine exercise and vacation. I do destination obstacle and road races in foreign countries, like
my upcoming 7-day running tour through Spain. Touring my favorite places by bicycle is also great. My ultimate vacation would be to start with an obstacle course race, followed by a trail 10K, finished off with a bike tour through Chateauneuf de Pape.