Authors

Luuk Jacobs

Luuk Jacobs

Partner

Chris New

Chris New

When BCP is not a fire drill what can we expect? The early results are already in

Posted by Luuk Jacobs and Chris New on 18th May 2020

2020 will be remembered as having the most dramatic start to possibly any decade due to the Covid-19 pandemic and the havoc it has wrought. We have seen the effects in our work at close hand. In a matter of days, most companies in the Asset and Wealth management industry hurriedly instigated Business Continuity Plans (BCP) in response to the Covid-19 pandemic and the sudden changes it brought with it. At times like these it is important to pause and reflect. Here are some of the insights we have gained by doing so – many of which indicate the short and long-term impacts of the situation.

Extended BCP timeframes

During my career I have been involved in the testing of Asset Management BCPs multiple times, as well as also being part of a real company continuity situation. The major difference between Covid-19 BCP and my prior experience of BCP is that previously they were always envisioned to last a certain amount of time and not endure for the several months (or even years) that we face currently!

Having said that, over two months down the road, the experience with our clients is that most, if not all of them, have managed their businesses through BCP well and overcome some initial hiccups, which are mainly related to not having sufficient available hardware for working from home. This coping helped by a general internet infrastructure that has proven to be able hold up under increased demand – even though our bandwidth has been challenged, and in some ways reduced, as the population begins to live online during lockdown.

New Priorities

Companies are now moving their attention to making sure that within this new reality cybersecurity is not compromised. Senior management is demanding the security of systems, and robust rules around the transfer of data, remain at the highest level. While the majority of its staff are working remotely their collective vulnerability has increased exponentially; hackers and cyber-attacks are always lurking in times of uncertainty and massive change in society or new technology and apps have not proven the business test of reliability and security.

Equally within the heavily regulated Financial Services industry, the FCA has already indicated that it is a company’s responsibility to also remain compliant in this new environment. What might be challenging is the continued recording of phone calls, close monitoring of trading, and in these times of volatility, reviewing breaches of fund objectives and restrictions, as well as ensuring sufficient liquidity.

Next steps

Likely the chapters as to how well (or not) the Financial Services industry has been doing, are still to be written, although so far, no red flags seem to have been raised. The big question now is how we move beyond this and how is the industry going to come out of this; will the former BCP become the basis of the new BAU? And if so, what will the “new BCP” look like when it is finished?

From BCP to BAU – what is the impact to our routines and work?

The good news is there is more clarity starting to be given on how countries will come out of confinement. Firms are already exploring what the impact overall could be, not just when and how staff are coming back to the office. This “new normal” is being discussed everywhere in articles, podcasts, webinars and the many informal discussions between colleagues. The question is – what will be “new” and what will just be a return to “normal”. While we might all just want to return to our former routines it is very unlikely this will happen, and we have all learned to live and work differently almost overnight.

Although the thought of staff coming back to work in the office can seem like a logistical nightmare, where strict social distancing needs to be adhered to, it is worth remembering it starts with the commute to work. Public transport in big cities, and definitely London, were packed already before. If even just a third of staff return to work, it is unlikely you would be able to adhere to social distancing during your journey. Alternatives are, for example, a spread in time of returning to the office; no longer 9am to 5pm but more like 5am to 9pm. Or would we ask only those that do not use public transport to come back to work? Just figuring out who of your workforce should be in the A, B or C group to make it work could turn out to be a challenge in itself.

Radical cultural change brought about by home working

Inevitably it looks like working from home (WFH) will be here to stay for a long time, even after the easing of lockdown measures. The silver lining of all this is it will have become a much more accepted and embraced way of working and companies with work-from-anywhere policies can boost employee productivity, reduce turnover, and lower organizational costs, according to recent research at Harvard Business School1&2.

As human beings we crave company and will actively seek it out – hence the sudden adoption of Zoom and other video technologies. While technology has proven it can enormously support the continuation of business meetings and discussions it has not replaced the watercooler, the coffee break, the lunch with the colleagues and the informal discussions that take place in these moments and which essentially can be the oil that keeps the motor running.

Work life balance has never been so compromised in these unusual times. As nearly everyone works from home right now, the distinctions between home and work are even more blurred. How are we going to balance this if working from home becomes more permanent? And by the way work – life balance was always more about not spending too much time at work. Now the balance has shifted to only spending time at home and for many families this includes home schooling with everyone in the family needing access to a laptop and lengthy internet use.

Conversely; as we are mainly all working from home it is no longer something to be frowned upon as it has been in the past. It has already demonstrated it can deliver continued good outcomes for firms. Nevertheless, the right balance for staff and the company will need to be found; there comes a point where even an introvert would like to see another human.

Leadership, management and teams – what’s next?

Questions as to how managers ensure long term coordination, cooperation and team spirit among staff when they would only see them on few occasions are myriad. How do you not just lead in today’s environment? How do we adapt to this new dynamic and associated challenges, and where are we heading? Will the “new normal” be something in between the current and the old, or something else entirely?

We will be exploring this area in our next article as it’s too important to dedicate a mere paragraph to and there are many things to consider so next let’s looking at operating models.

Know thyself – understanding your operating model

Whenever we work with clients on almost any engagement from reviewing or implementing a strategic risk and control management framework; or articulating the front to back operating model of a firm for a regulatory application, the focus is always on helping them truly understand how their organisation operates. This may seem odd given the highly sophisticated organisations that operate in the industry. The pressures of day to day operations and business mean transforming your strategic vision for your operating model into a universally understood and executing of technology, process and people is often an unfinished task or never-ending work in progress. Communicating your Target Operating Model (TOM) to all parts of your organisation is crucial, especially during these extraordinary times.

Managing and controlling your operating model

The focus of regulators, with the UK at its vanguard, with its senior manager regime (SM&CR) is ensuring that senior managers are responsible for all parts of their operations. No amount of delegation or outsourcing will be an excuse for a failure in operations. The corollary to this is that these managers will be forced to understand and sufficiently evidence these operating models precisely so they are ready to understand how they will react in a time of stress. COO and CTO responsible for IT will have been referring to their policies and procedures on cybersecurity and remote working to review how these can be flexed in order to tackle the immediate challenges. For those who fully understand their areas of responsibility and have developed a framework with sufficient reporting and controls in place, the current crisis will be a fire drill that will be stressful but also a successful vindication of the investments and hard work since the financial crisis and arrival of FinTech. For others this may well be their Damascene moment where the true importance of a fully functioning operating model becomes more than a regulatory burden but an immediate priority on every senior manager’s to do list.

Digital transformation will increase operational resilience of the operating model

Many traditional Financial Services organisations have invested heavily in digital transformation over the last five or more years to not only reap the benefits of increased profitability but also to defend their market share against the rise of customer-centric FinTech offerings. The Asset Management sector has certainly not been immune to this trend. While there has been much focus on innovation, and particularly through agile methods of working, to deliver this change ‘to market’ at a more efficient speed, automation of operating model process is one of the most important changes in terms of improving efficiency and, as a platform, for truly harnessing the power of artificial intelligence (AI). In fact, the Harvard Business Review wrote an article as recently as January 2020 entitled, “If you want your digital transformation to succeed, align your operating model to your strategy”5. It emphasises how it is not only the efficiency that the operating model will bring, as a by-product of transformation, but the enhanced capabilities such as data extraction and reporting that are equally extremely important in a BCP crisis of the current nature.

Process automation is crucial in streamlining operations in Asset Management and reducing the cost of human intervention and error. This may seem dystopian to some as it inevitably means a lower head count in operations. It actually produces real and tangible benefits to investors in lowering administration costs and operational risks. Covid-19 will likely emphasise bottlenecks, for example where too many human interventions are required to ensure a streamlined ‘straight-through-process. Simplified organisations, especially in terms of process and technology are inherently more operationally resilient and have been a focus of regulators since the financial crisis as the Investment Association noted in its consultation paper as recently as December 20194. in order to automate process for say robotics (RPA), an Asset Manager will have already undertaken the work to understand and simplify the end-to-end customer journey to remove bottlenecks or any idiosyncratic manual interventions that will have been highlighted by remote working and fragmented teams.

A rapidly automated post Covid-19 future?

A positive outcome of Covid-19 is Asset Managers will hopefully have quickly learnt more about which of their operational and risk systems are truly automated and can function in a fragmented and remote employee set up where key person risk can become an issue literally overnight. In the not too distant future, can we expect to see an exponential increase in the move towards automation to help recoup many of the lost fees and additional costs that the Covid-19 emergency has hit the industry with?
Martijn Moerbeek director Digital Strategy and Innovation, Legal and General wrote in April that he believes the crisis could be the catalyst to break the inertia in digital transformation. He regards the Asset Management industry and its traditional role as a follower of innovation rather than leading innovation (of technology and operations), citing the trade-off between the ‘old guard’ with business expertise and power but insufficient understanding of IT innovations as the reasons why6.

Undeniably we will exit Covid-19 as a much more enlightened industry when it comes to deployment of technology and dynamic innovation. The way we work, travel and deploy technology will also see great changes. This behaviour is more in line with the tech industry’s ‘fail fast, learn fast’ mantra that has been an unavoidable accelerator of innovation, the speed of which we’ve never seen before across not just the industry, but every aspect of our lives. We will also see far reaching changes with some very positive benefits, many of which have yet to been become clear but every one of us will have played a role in this new world under construction.

1. Harvard Business School. “How Companies Benefit When Employees Work Remotely.” Accessed March 12, 2020.
2. Harvard Business School Faculty & Research. “Work-from-anywhere: The Productivity Effects of Geographic Flexibility.” Accessed March 12, 2020
3. Investment Association: Operational Resilience: Business Services & Beyond. December, 2019
4. Harvard Business review. “If you want your digital transformation to succeed, align your operating model to your strategy”. January 31, 2020.
5. Bank Exchange website: Martijn Moerbeek: Could COVID-19 Turbocharge Asset Management’s Inertia Over Digital Transformation. April 19, 2020.