Resilience is a hot topic in the world of UK payments, and rightly so. It was around this time last year that instability around the Silicon Valley Bank and Credit Suisse threatened to put the global banking system into crisis mode. But payment and operational resilience in the system held up. Crisis averted.
And it was also around this time two years ago when the Russia-Ukraine crisis threatened to upend the cross-border payments ecosystem. But correspondent banking and alternative payment rails added the necessary resilience to the system. It’s too early to say that this crisis has been averted; however, resilience within the system limited the disruption.
Corporate treasurers, CFOs and other financial leaders should take a page from this ‘playbook’ and pay attention to their own operational and payments resiliency
National payment infrastructures also experienced some worrying incidents in 2023, with both the UK’s national real-time gross settlement system, CHAPS, and Japan’s venerable Zengin national interbank payment system suffering from significant failures.
Resilience is also high on the agenda because it is about to be mandated in the UK. That mandate is coming in the form of Supervisory Statement 1/21 (SS1/21) Operational resilience: Impact tolerances for important business services. This sets out the Prudential Regulation Authority’s (PRA) expectations for the operational resilience of firms’ important business services, for which they are required to set impact tolerances. SS1/21 will require banks and regulated non-bank financial institutions to have in place an alternative payment system to assure payments continuity in the event of a crisis.
Corporate treasurers, CFOs and other financial leaders should take a page from this ‘playbook’ and pay attention to their own operational and payments resiliency. In my opinion, this resilience needs to take three forms: compliance, control and cash flow management. All three are essential for ensuring payments resilience and security amid the current economic uncertainty facing the UK.
Understanding SS1/21 goes beyond mere regulatory compliance – it’s about embedding operational resilience at the core of strategic planning
Compliance is about to become a more urgent issue with SS1/21. It sets forth the PRA’s expectations for the maximum acceptable level of disruption to critical business operations, clearly delineating the boundaries within which services must be maintained – including specifying the maximum allowable downtime. With its formal enforcement in mid-2025, the ripple effects of SS1/21 are already being felt across the sector, with firms receiving preliminary communications from the Authority. In our experience, the urgency among these organisations as they get to grips with the scope and scale of the mandate is real; SS1/21 is nothing less than a comprehensive overhaul aimed at ensuring operational continuity in the face of inevitable disruptions.
Understanding SS1/21 goes beyond mere regulatory compliance – it’s about embedding operational resilience at the core of strategic planning. The Bank of England’s March 2022 update on the regulation sheds light on its intent to fortify the financial ecosystem against the backdrop of its inherent interconnectedness and the rapidly evolving operational landscape.
The PRA’s stance is unequivocal: a baseline standard of resilience is imperative, not just for safeguarding firms’ operational integrity, but also for protecting policyholders and maintaining overall financial stability. This call to action has been motivated by the acknowledgment of the inevitability of operational shocks and the potential risks they pose to the sector’s soundness and security.
Companies that ignore the potential of fraud are not being mindful of operational and payments resilience
Control, in the context of resilience, must focus on risk management and risk solutions. Arguably, the biggest threat to resiliency is fraud. It can come from payments fraud, social engineering fraud or insider threats. The potential damage to finances and reputation from fraud can be disruptive and devastating.
Businesses need a mix of three strategies to maintain this control and resilience: secure payments, insider threat management; and confirmation of payee. Secure payments will use technology to detect payment anomalies and flag alerts, rather than rely solely on personnel. Insider threats can be mitigated with application-level interaction monitoring technology. Confirmation of Payee – a name-checking service for banks introduced in 2020 to protect against authorised push payment (APP) fraud and misdirected payments – is an account and name-checking service that automates approval of both parties in a transaction and assures their legitimacy.
Companies that ignore the potential of fraud are not being mindful of operational and payments resilience.
Automation also reduces the risk of human error in cash management processes
Cash-flow management is perhaps the most important touchpoint for control of short-term liquidity and the resilience to forecast it. By leveraging automation in managing cash flows, organisations can significantly enhance their ability to withstand, and quickly recover from, operational disruptions. Automated tools provide real-time visibility into an organisation’s cash position and can forecast future cash flows with greater accuracy. This enables timely decision-making regarding investments, debt management and capital allocation, ensuring that the organisation maintains optimal liquidity levels to support operations during any disruptions.
Automation also reduces the risk of human error in cash management processes – such as data entry mistakes, delayed reconciliations or overlooked payments – which can compromise financial stability. By minimising these errors, companies can maintain a stronger financial position and mitigate risks associated with financial mismanagement.
And, finally, automated cash-flow management systems offer advanced analytics and reporting capabilities, allowing organisations to analyse trends, identify potential vulnerabilities and make informed decisions. This proactive approach to financial management supports strategic planning and the development of contingency plans to navigate through challenging times.
As the financial sector prepares for SS1/21, corporates need to follow suit. They need the tools and insights required to navigate financial uncertainties, adapt to changing conditions and sustain their operations – thereby safeguarding their long-term success and stability.
Richard Ransom is solution consulting manager for corporates at business payments solutions firm Bottomline
