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  • OM-4 OM-4 Business continuity and contingency planning

    • OM-4.1 OM-4.1 Contingency planning

      • OM-4.1.1

        Although operations risks are difficult to quantify, they can often be evaluated by examining a series of "worst-case" or "what-if" scenarios (stress testing), such as a power loss, a doubling of transaction volume or a mistake found in the pricing software for collateral management. They can also be assessed through periodic reviews of procedures, documentation requirements, data processing systems, contingency plans and other operational practices. Such reviews may help to reduce the likelihood of errors and breakdowns in controls, improve the control of risk and the effectiveness of the limit system and prevent unsound marketing practices and the premature adoption of new products or lines of business.

      • OM-4.1.2

        Such stress tests should not be limited to quantitative exercises that compute potential losses or gains. They should also include more qualitative analyses of the actions management might take under particular scenarios. Contingency plans are important products of such qualitative analyses.

      • OM-4.1.3

        Since the delivery of corporate and customer services represent key strategic and reputational issues, such problems could cause serious difficulties for banks and even jeopardise their ability to conduct key business activities. This requires the bank to establish business continuity and contingency plans outlining operating procedures and lines of communication, both formal and informal, in the event of an unexpected disaster (also see Basel Committee paper 'Framework for Internal Control Systems in Banking Organizations' for further guidance).

      • OM-4.1.4

        For contingency planning relating to outsourcing activities, see section OM-2.6.

    • OM-4.2 OM-4.2 Succession planning

      • OM-4.2.1

        Succession planning is an essential precautionary measure for a bank if its leadership stability — and hence ultimately its financial stability — is to be protected. Succession planning is especially critical for smaller institutions, where management teams tend to be smaller and possibly reliant on a few key individuals.

      • OM-4.2.2

        The Agency will generally monitor banks' succession plans through the work of its on-site examiners. In order to supplement these efforts, the Agency requires its locally incorporated banks to submit to the Agency a description of their succession plans for their senior management team. Locally incorporated banks must summarise who is covered by their succession plan, and confirm that the plan has been reviewed and endorsed at Board level.

      • OM-4.2.3

        The information required in paragraph OM-4.2.2 should be submitted to the Agency by the end of each calendar year. It should be addressed to the Executive Director, Banking Supervision.