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De Nederlandsche Bank. Business Continuity Planning and Crisis Management & Principles for Financial Market Infrastructures Michael van Doeveren 4th Conference on Payments and Securities Settlement Ohrid, Republic of Macedonia 22 June 2011. Introduction - PowerPoint PPT Presentation
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De Nederlandsche Bank Eurosysteem
Business Continuity Planning and
Crisis Management & Principles for Financial Market Infrastructures
Michael van Doeveren 4th Conference on Payments and Securities Settlement Ohrid, Republic of Macedonia 22 June 2011
De Nederlandsche Bank
De Nederlandsche Bank Eurosysteem
Contents
Introduction DNB Assessment Framework Business Continuity
Planning Concepts of Crisis Management Arrangements and initiatives in the Netherlands Concluding remarks BCP FMI Principles
De Nederlandsche Bank Eurosysteem
What is Business Continuity?Business Continuity Management: a whole-of-
business approach, that includes policies, standards, and procedures, to ensure (critical) operations can be maintained, or restored in a timely fashion, in the event of a disruption.
Its purpose is to minimise the financial, legal, reputational and other material consequences arising from disruption
Source: BIS 2005
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BCP in an international contextThe American White Paper on Sound
Practises to strengthen the Resilience of the US Financial System
The Tripartite Standing Committee on Financial Stability
Bank of Japan resilience plansInitiatives of the EurosystemJoint Forum/Financial Stability
Forum/BIS/CPSS’ work
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The Dutch situation
Small country, few large banks DNB is both central bank and prudential supervisor for banks,
pension funds and insurance companies Financial core infrastructure for Payments and Securities, in NL
defined as:Central bank CSDCCP Stock exchangeACH Major banks
De Nederlandsche Bank Eurosysteem
DNB BCP Assessment Framework (1)
First version in 2004, current version of 2007; Drafted in cooperation with the financial institutions Commitment to use it on a high level Assessment Framework consists of
9 ‘principles’ based on international standardsGuidance note Human Factor Agreement between DNB and the financial sector for joint BCP
initiatives In line with international principles such as BIS Used by supervisor and overseer to assess the institutions
of the financial core infrastructure against these principles
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DNB BCP Assessment Framework (2)
1. BCP should be approved by the EB/senior management
2. Risk analyses of critical systems and activities should be made
3. Explicit attention should be paid to the human factor
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DNB BCP Assessment Framework (3)
4. Each institution should have a crisis organisation, including senior management
5. Single points of failure (SPOFs) should be identified
6. Critical processes and systems should be resumed as quickly as possible
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DNB BCP Assessment Framework (4)
7. A back-up site/secondary site should be available
8. Alternate systems and contingency procedures should be regularly tested and exercised
9. Each institutions should have a communication plan for all stakeholders
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Guidance Note Human factor
Assessment showed that institutions have problems with principle 3, paying explicit attention to the human factor
DNB developed a ‘Guidance note human factor’ to assess the human factor aspect for critical systems and business processes, depending on the level of knowledge that is required: specific in the extreme, highly specific, specific, not very specific, not specific
Matrix with level of required knowledge and human factor strategy see www.dnb.nl
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Required Knowledge
Specific in the extreme. Highly specific. Specific. Not very specific. Not specific.
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Ways of ensuring staff continuity
1. double staffing at another location
2. planned scheduling days off
3. shift work
4. use of staff from another location where a similar situation is operational
5. use of staff from another location where a similar situation is not operational
Required level of knowledge of systems/business processes
specific in the extreme (a)
red
highly specific (b)
specific (c)
not very specific (d) green
not specific (e)
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Concepts of crisis managementfor the payment system (1)Basic assumption
Payments can be regarded as what oil is for an engine
Continuity of payments is essential for both the public and the financial system.
ConsequencesMeasures should be implemented that guarantee business continuity of the payment system
Implementation of a crisis management structure to prevent contagion and limitation the risks as for as possible
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Concepts of crisis managementfor the payment system (2)Crisis management preconditions
Involvement required of critical participants of the whole payment system
Focus the continuation of the operation of the whole payment chain.
ImplementationFormation of crises management teamPrepare organisation. Discuss objectives, define concept crisis management, investigate objects, invest existing measures, define effectiveness measures, investigate alternatives
Prepare and perform tests. Both internal and sector wide.
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Tripartite Crisis Management in the Netherlands
Tripartite Crisis Management: Ministry of Finance, AFM, DNB
Consultation Group (Board level)
Advisory Groups: - Retail - Wholesale - Securities
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Crisis Management – What
Crisis managementRespond to payments and securities sector-wide
Operational crises: procedures regarding communication, decision making etc.
´Sector BCM´´Peace time´ preparation for times of crises; plans, good overview of critical processes for the sector, alternatives and possibilities in case of a crisis, communication, knowing each other
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Escalation model
Alert Scaling
Impact forpayments and
securities
ActivationType of crisis
Local Global
Large
Small
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Crisis Management – How
“Red Booklet” contains information about: Crisis management, communication
and decision making procedures Wholesale, retail, securities
alternativesHowever, not many viable alternatives: Possible alternatives based on rerouting of key processes:
CLS, TARGET2, EBA, correspondents Cash/ATM´s, mass payments, one-off
direct debit Bilateral accounts for OTC etc.
In practice: combination of emergency proceduresof the different parts of the chain
At the moment no viable alternative for SWIFT
Communication and trust is key!
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Payment flows from andto the institutions
themselves and/or theirclients
EURO1 (EUR)
TARGET/local TARGETcomponents/TARGET2
(EUR)
SWIFT
CLS (EUR and non-EUR))
Correspondent Banking(EUR and non-EUR)
Institutions Transport Payment circuit/system
Example – Wholesale (1)
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Example – Wholesale (2)The following were regarded as the most important wholesale payments (per
bank): CLS incoming (and outgoing) payments MM and FX transactions Liquidity transfers to/from offices/agents abroad EBA settlement payments and liquidity swaps Payments for the clearing and settlement of securities Critical payments for clients (corporates, pension funds) ´Margin calls´ (collateral for securities clearing)
Broadly speaking, around 20-30 critical payments per bank per dayIn case of one bank’s failure, this can be processed manuallyIn case of TARGET2 failure, strict rules apply; only ‘very critical payments’ can be
processed
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CIP in the Netherlands
Government project on critical infrastructure protection started in 2004
In cooperation with the private sector, the government defined 12 infrastructures as critical: airports, public transport, energy, health care, etc.
Payments and securities processing is one of them
Follow up of the project in 2004, among others: Counterterrorism Alert System
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Dutch Counterterrorism Alert System (1) Set up by the government in 2005 to ‘alert’ critical
infrastructures in the event of heightened terrorist threat
Measures to be taken quickly in order to minimise the risk and to limit the potential impact of terrorist acts.
Cooperation between the government and private sectors
More than 10 sectors are currently connected (a.o. airports, harbours, public transport, oil and gas, etc.)
Financial core infrastructure connected as of May 1, 2006
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Dutch Counterterrorism Alert System (2)
Four levels of threat: standard, low, moderate, high
Each level comes with its own set of (additional) security measures, both for the sector and for the government
Government and sector agree together on the measures to be taken
Contacts with local authorities very important Workshops, tests and exercises are
organised per sector
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Experiences Counterterrorism Alert SystemFormalised (communication)
procedures to inform the sector about threats
Increased cooperation and information sharing within the financial sector in the area of security and with other sectors
Improved contacts and cooperation with local authorities and other stakeholders (police, community, fire brigade, neighbour companies etc.)
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Exercising experienceThink BIG, start SMALL
For Crisis Management exercises increase in complexity
and depth:
Connectivity/communication tests: several times a year
Crisis management workshops: Discussion, based on
scenario
Table top exercises: simulation with ‘real play’
Large scale government exercise regarding ICT and
cybercrime
Operational exercise where security measures are taken
for real
Market wide exercises
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International context for business continuity in payments and securities
“Dutch” market infrastructure is hardly Dutch anymore
This is due to the consolidation trend and the battle for efficiency
Not only for commercial institutions, but also for central banks
An operational crisis in Brussels/Frankfurt/Paris may impact the Dutch market more than a local crisis in Amsterdam
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Increasing (need for) interaction & cooperation
Linked to ESCB crisis managementCo-ordinated communication with
market infrastructures en major participants
Possible international solutions to “domestic” problems
Central banks can help each otherSolving problems in cooperation
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Concluding remarks BCP
Regular assessments work!
Increase your level of resilience by Control – Top level commitment Coordination – Central bank/regulator roleCooperation – Financial core infrastructureCommunication – All stakeholders, both national and international
Exercising keeps BCP alive
Human factor is key for everything
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Principles for Financial Market Infrastructures (FMI)
Co-production of: BIS Committee on Payment and Settlement Systems Technical Committee of the International organization
of Securities Commission (IOSCO) FMI Principles replaces all older separate principles
for Systemically Important Payment Systems, Securities Settlement Systems and Retail Payment Systems
Report is for public market consultation until 29 July 2011
Final report will be publishes in 2012
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FMI Principles (1)
General organisationPrinciple 1: Legal basisPrinciple 2: governancePrinciple 3: Framework for the comprehensive
management of risks
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FMI Principles (2)
Credit and liquidity risk managementPrinciple 4: Credit riskPrinciple 5: CollateralPrinciple 6: MarginPrinciple 7: Liquidity riskPrinciple 8: Settlement finalityPrinciple 9: Money settlementsPrinciple 10: Physical deliveries
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FMI Principles (3)
Central securities depositories and exchange-of-value settlement systems
Principle 11: Central securities depositoriesPrinciple 12: Exchange-of-value settlement
systems
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FMI Principles (4)
Default managementPrinciple 13: Participant-default rules and
proceduresPrinciple 14: Segregation and portability
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FMI Principles (5)
General business and operational riskmanagementPrinciple 15: General business riskPrinciple 16: Custody and investment riskPrinciple 17: Operational risk
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FMI Principles (6)
AccessPrinciple 18: Access and participantion
requirementsPrinciple 19: Tiered participation
arrangementsPrinciple 20: FMI links
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FMI Principles (7)
EfficiencyPrinciple 21: Efficiency and effectivenessPrinciple 22: Communication procedures and
standards
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FMI Principles (8)
TransparancyPrinciple 23: Disclosure of rules and
proceduresPrinciple 22: Disclosure of market data
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Responsibilities of central banks, market regulators and other authorities
Responsibility A: Regulation, supervision and oversight of FMIs
Responsibility B: Regulatory, supervisory, and oversight powers and resources
Responsibility C: Disclosure of objectives and policies with respect to FMIs
Responsibility D: Application of principles for FMIs Responsibility E: Cooperation with other authorities