III     Risk Management

Business continuity risk management focuses on a subset of operational risk factors, against which capital and reserves alone may not protect an entity, and involves managing the possibility of an event that jeopardizes critical systems.Refer to the U.S. Department of the Treasury and the Department of Homeland Security’s (DHS) Financial Services Sector-Specific Plan 2015. The BIA and risk assessment represent the foundation of BCM. As illustrated in figure 2, BCM should integrate with an entity’s enterprise risk management (ERM),ERM is “[a] process, effected by an entity’s board of directors, management and other personnel, applied in strategy-setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.” (Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management – Integrated Framework (Executive Summary), September 2004) which allows for the identification and management of risk across the entire entity. BCM allows management to set strategy to effectively mitigate risks posed by disruptive events. The level and formality of BCM and ERM integration should be commensurate with the entity’s complexity and risk profile.

Figure 2: Business Continuity Management Elements (Relative to Enterprise Risk Management)

Business Continuity Management Elements (Relative to Enterprise Risk Management)

Management should use the BIA and risk management processes to identify and monitor continuity risks for an entity. Once management determines the risk, there are four common strategies to address that risk: risk acceptance, risk mitigation, risk transference, and risk avoidance. Risk transference, such as obtaining insurance, may allow management to recover financial losses or expenses resulting from an event and can be an effective capital management tool; however, insurance should not be a substitute for effective controls or continuity and resilience planning. Management’s continuity and resilience planning efforts should focus on risk mitigation and avoidance strategies, and where appropriate, risk acceptance strategies. These strategies are covered more in depth throughout this booklet. Refer to the IT Handbook’s “Management” booklet for additional information.

Management at large and systemically important entities whose failure could trigger a broader financial disruption should assess the likelihood and impact of a disruption, both to the entity and the entire financial sector. These entities are a critical component of the broader financial system and should incorporate scenarios of disruptions impacting the financial sector into the entity’s BCM processes.

The Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System (Sound Practices Paper)Refer to the Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System issued by the SR Letter 03-9 (FRB), Bulletin 2003-14 (OCC), and Release No. 34-47638 (U.S. Securities and Exchange Commission (SEC)). Also refer to 68 Fed. Reg. 17809. outlines practices for financial industry participants that perform clearing and settlement activities for critical financial markets (core firms) and institutions that process a significant share of transactions in critical financial markets (significant firms). Regulators have notified all participants that meet the definition of a core or significant firm as set forth in the Sound Practices Paper. Because core and significant firms participate in one or more critical financial markets, and their failure to perform critical activities by the end of a business day could present systemic risk to financial systems, their role in financial markets should be addressed as part of the business continuity planning process.




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