How do banks ensure operational continuity during resolution — what happens to IT systems, payment access, and shared services?

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AcadiFi · Accepted Answer

Operational continuity in resolution (OCIR) ensures that the critical functions of a bank — payments, settlements, custody, lending — continue operating without interruption during...

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**Key areas of operational continuity:**

1. **Financial Market Infrastructure (FMI) access** — continued membership in payment systems (Fedwire, CHAPS, TARGET2), clearing houses (LCH, CME), and securities depositories (DTC, Euroclear)
2. **IT and technology** — servers, applications, data centers, cybersecurity systems, and disaster recovery infrastructure
3. **Shared services** — many G-SIBs run group service companies providing IT, HR, compliance, and accounting to multiple subsidiaries
4. **Third-party contracts** — vendor agreements for cloud computing, data feeds, market data (Bloomberg, Refinitiv), and outsourced operations
5. **Staff retention** — key personnel must remain through the resolution period

**Resolution planning requirements:**

| Component | Requirement |
|-----------|------------|
| Service mapping | Identify all critical services and their providers |
| Service Level Agreements | Ensure intra-group SLAs survive resolution |
| Operational resilience testing | Demonstrate service continuity under resolution scenarios |
| FMI contingency | Pre-arranged agreements with FMIs for continued access |
| Staff continuity | Retention arrangements for key personnel |

At Clarendon Group Holdings, the resolution plan identified 847 intra-group service arrangements supporting critical functions. The resolution authority required that all critical service agreements include a "resolution-resilient" clause — guaranteeing service continuation for at least 24 months post-resolution at pre-agreed pricing, regardless of the parent's status.

The most common failure point in resolution simulations is technology. When the parent entity that owns the core banking platform is placed in liquidation, subsidiaries transferred to a bridge institution risk losing access to their own systems. Best practice requires either separate licensing of critical software or transfer of IP to a group service company that is structurally insulated from resolution.

For the FRM exam, operational continuity is a testable topic because it bridges financial resolution theory with practical execution risk.

How do banks ensure operational continuity during resolution — what happens to IT systems, payment access, and shared services?

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