1. 1 2003 ACSDA SEMINAR Recent Global Crises and the Need to Reassess Business Continuity Policies and Practices Practices Gill Marcus South African Reserve Bank

2. 2 RECENT GLOBAL CRISES AND THE NEED TO REASSESS BCM l The cost of recent global crises l The importance of financial stability l Assessing business continuity management l An approach to sectoral cooperation

3. 3 RECENT FINANCIAL SYSTEM CRISES l What is a financial system crisis? l Crises impacting the global financial system l Y2K, 9/11, Iraq, Brazil, Enron, Blackouts l Lessons learnt l Confidence, communications, relationships

4. 4 THREATS AND THEIR COSTS l Types of threat Banking system risks, natural disasters, cyber-threats Banking system risks, natural disasters, cyber-threats l Direct costs Exceeded 15% of GDP in 20 cases in 10 years Exceeded 15% of GDP in 20 cases in 10 years Indirect costs Indirect costs 2 percentage points GDP growth forfeited 2 percentage points GDP growth forfeited Macroeconomic costs Macroeconomic costs

5. 5 THE IMPORTANCE OF FINANCIAL STABILITY l Mission of the SARB “ The achievement and maintenance of financial stability” l Financial stability comprises: l Price stability l Financial system stability

6. 6 COMPONENTS OF FINANCIAL STABILITY l Price stability low inflation low inflation low volatility of prices, interest and exchange rates low volatility of prices, interest and exchange rates Financial system stability Financial system stability efficient institutions and markets efficient institutions and markets effective regulatory infrastructure effective regulatory infrastructure robust financial system/ able to withstand shocks robust financial system/ able to withstand shocks

7. 7 A possible definition... “.. households, businesses and financial-service firms can reliably hold and transfer financial assets, without a meaningful risk of disturbances that would undermine financial exchange fundamentally and lead to macroeconomic costs” (Engert and Selody, Bank of Canada) FINANCIAL SYSTEM STABILITY

8. 8 DISTURBANCES COUNTRIES TRIGGERS/CAUSES DISTURBANCES COUNTRIES TRIGGERS/CAUSES - Asset price shock - USA (2000)- Adjustments in equity values - Banking crises - Japan (1998)- Moral hazard - Turkey (2001)- Under-capitalised - Argentina (2001)- Depositor run - Argentina (2001)- Depositor run - Currency crises - East Asia (1997)- Current account - Turkey (2001)- Capital outflows - South Africa (2001)- Contagion - South Africa (2001)- Contagion - Argentina (2001)- Fixed exchange rate - Argentina (2001)- Fixed exchange rate EXAMPLES OF DISTURBANCES

9. 9 DISTURBANCES COUNTRIES TRIGGERS/CAUSES DISTURBANCES COUNTRIES TRIGGERS/CAUSES - Debt crises - Argentina (2001)- Govt. debt default - Japan (2002)- Corp. debt - Japan (2002)- Corp. debt - Financial crisis - USA (1998)- LTCM - Geopolitical crisis - USA, the world- War on Iraq (2003) (2003) - Terror attack- USA, 9/11- Political - Corporate failures- USA/ Europe- Governance (Enron/ Worldcom) breakdown EXAMPLES OF DISTURBANCES

10. 10 ASSESSING BUSINESS CONTINUITY MANAGEMENT Objectives and related issues Objectives and related issues Detection, management, resolution Detection, management, resolution l An umbrella approach l BCM interrelations l Who would be affected? l Who could affect us? l Who needs to know?

11. 11 AN UMBRELLA APPROACH TO BCM

12. 12 BCM INTERRELATIONSHIPS

13. 13 FRAMEWORK FOR BCM 1. Develop a policy and framework for BCP l Policies, roles and responsibilities l Planning methodology: tailored,dynamic 2. Conduct threat and business impact analysis l Identify threats and disaster scenarios l Identify critical business processes and recovery time objectives l Formulate recovery strategies

14. 14 FRAMEWORK FOR BCM FRAMEWORK FOR BCM 3. Conduct Business Continuity Planning and IT Disaster Recovery Planning l Plan development: emphasis on clearing and settlement 4. Facilitation of BCP testing: l Crisis simulation workshops, independent audit l Review and revise plans 5. Conduct evaluation and awareness sessions and training

15. 15 ALTERNATIVE FRAMEWORK FOR BCM

16. 16 ATTRIBUTES OF A SOUND APPROACH TO BCM Roles and responsibilities pre-establishedRoles and responsibilities pre-established Ultimate decision-making authority setUltimate decision-making authority set Multilateral information sharing is keyMultilateral information sharing is key Content and tone of information disclosed - factual and balancedContent and tone of information disclosed - factual and balanced

17. 17 ATTRIBUTES OF A SOUND APPROACH TO BCM Self-assessment and self-disclosure of readiness status is vitalSelf-assessment and self-disclosure of readiness status is vital Key communication lines pre-establishedKey communication lines pre-established Primary and alternate communication mechanisms in placePrimary and alternate communication mechanisms in place

18. 18 CRITICAL SUCCESS FACTORS FOR BCM CRITICAL SUCCESS FACTORS FOR BCM Organisational commitmentOrganisational commitment Top management commitment and supportTop management commitment and support Effective multi-disciplinary communicationEffective multi-disciplinary communication Free inter-agency cooperationFree inter-agency cooperation TransparencyTransparency No constraints on information sharingNo constraints on information sharing

19. 19 CRITICAL SUCCESS FACTORS FOR BCM CRITICAL SUCCESS FACTORS FOR BCM Good teamworkGood teamwork Key persons available for planning workshopsKey persons available for planning workshops Testing and evaluation of preparations and plansTesting and evaluation of preparations and plans International research and best practiceInternational research and best practice Realistic simulated crisis management exercisesRealistic simulated crisis management exercises

20. 20 Do “perfect” corporate BCPs translate into “perfect” sectoral BCM? Related markets Related markets Communication Communication Settlement Settlement Liquidity Liquidity BCM: SECTORAL VERSUS ORGANISATIONAL CONSIDERATIONS

21. 21 Set up “umbrella body” (FSCF) to: Provide a forum for open discussion Provide a forum for open discussion Create network of contingency planning contacts Create network of contingency planning contacts Provide opportunity for strategic initiatives Provide opportunity for strategic initiatives Work together in a cooperative way Work together in a cooperative way Obtain guidance from regulators Obtain guidance from regulators Work with local and international organisations Work with local and international organisations AN APPROACH TO SECTORAL COOPERATION

22. 22 CONCLUDING REMARKS The challenge of timely and appropriate intervention: How much extreme market risk should government absorb?How much extreme market risk should government absorb? Was the probability of systemic collapse sufficient to warrant intervention (in hindsight)?Was the probability of systemic collapse sufficient to warrant intervention (in hindsight)?