2020: Volatile Markets & Changing Times
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Operational risk facing global markets
2020 has seen some of the most volatile markets for years
Covid-19 has brought into sharp focus the need for improved operational resilience in the financial markets as high trading volumes and market volatility place unprecedented pressure on technological infrastructure. This whitepaper discusses why operational risk is today one of the biggest threats facing global markets. It will also discuss the three essential pillars of operational resilience that, if adopted, will keep markets up-and-running.
From 2018 to 2019, the number of technology incidents among the investment management sector rose by 325% (FCA Sector Views 2020)*
From the paper itself...
IT failures: a global threat
In the space of a few decades, the financial markets have gone from hand signals and handshakes to algos and AI. The sector is now almost entirely dependent on the complex technological infrastructure that underpins it. While this evolution has had a number of positive effects on the industry, including improved efficiencies, returns and compliance, it has put a lot of very important systems at the mercy of little-understood, little-monitored technology and software.
As a result, system outages have risen in frequency. From 2018 to 2019, the number of technology incidents among the investment management sector rose by 325% (FCA Sector Views 2020). Outages have also risen in the magnitude of their effect. Eight years ago, when Knight Capital suffered a glitch, it took just 30 minutes for the firm to lose a staggering $440 million. Today, with financial markets more interconnected and reliant on technology than ever, the consequences of a single IT failure could be catastrophic, both for individual investment managers and trading platforms which could face irreparable losses to their reputations and market shares, and for the wider financial markets.
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Operational resilience is a set of techniques that allow people, processes and informational systems to adapt to changing patterns. It is the ability to alter operations in the face of changing business conditions.