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Operational risk post-COVID
31 Oct 2021

While the year 2020 presented challenges for the investment sector, it also forced many to re-evaluate what it meant to work as part of a team with physical separation, even as businesses were forced to make drastic shifts toward social distancing and remote  operations. Despite the possibility of a return to normalcy coinciding with the introduction of various COVID-19  vaccines, many companies will continue to allow employees to work from home in the near future.

Many people contemplated on the previous year’s lessons in 2021, with an emphasis on understanding the problems given by a remote situation and strengthening teams’ ability to collaborate while physically apart. What tendencies have emerged, and what impact will they have on operational risk in the coming year, now that more than a year has passed, and many people have adjusted to remote work?

Operational risks on the rise

Regulators will refocus: In 2022, global financial regulators will likely shift their attention to programs that were not finished in 2021, with possibly new regulations to consider in the aftermath of the pandemic. The Guidance on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements, which the MFSA passed in December 2020, recognises the importance cybersecurity should be given in the rise of the pandemic and requires companies to consider technology as a core component, innovation enabler, and major determinant of operational efficiency, while emphasising the importance of resilience and regulatory compliance.

Cyber risks will persist: Many investment firms spent the majority of 2020 and 2021 implementing new remote-work practices, settling into a new normal while making continual improvements to their remote operations. Many sectors had been preoccupied with the problems of ensuring their company could operate in the new environment. Many businesses in a variety of industries fear they have compromised cybersecurity in order to swiftly allow employees to work from home. As a result of operating in a remote setting, a number of investment managers and their investors increased their focus on cyber-security procedures.

Many companies will continue to allow employees to work from home in the near future- Reana Micallef

Employee well-being:  In 2021, the financial industry faced an equally serious mental health crisis, in addition to the crisis that was unfolding all around it. The industry may have demonstrated its resilience by continuing to operate with the majority of people working from home. For many employees, though, the early months of the pandemic felt more like an endurance test. COVID anxiety has provided a strain on focus, productivity, and morale, all of which can  potentially lead to errors. The physical and mental well-being of employees has emerged as a top priority for the coming year.

Moving Forward onto 2022: As companies look for ways to boost the value of their agendas, they should concentrate on lowering internal losses caused by the aforementioned increasing risks. Improving the quality and completeness of internal loss data is a critical step in achieving that goal. The greatest benefit will come from combining internal loss data with data from a variety of other internal and external sources, and then employing analytical tools to spot dangerous risk build-ups. These capabilities can provide a company with the forward-looking information it needs to establish successful risk mitigation and loss-reduction plans.

Looking ahead to 2022, investment firms can start reducing operational risk by implementing a variety of enhanced  processes, such as evaluating technology infrastructure to support a remote environment, developing additional training to identify and escalate operational issues, and considering the expertise of independent cyber assessment firms in evaluating new cybersecurity risks.

Although the investment industry has faced challenges in 2020 that are unlikely to be repeated anytime soon, the insights and lessons learnt during the past two years have provided a unique chance to confront a changing business. Experts in the field of operational risk can help with this shift by providing the direction needed to satisfy the expectations of an evolving investment industry in 2022 and beyond.

Reana Micallef is risk manager at BOV Asset Management Ltd.

The writer and the company have obtained the information contained in this document from sources they believe to be reliable, but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this document. They have no obligation to update, modify or amend this article or to otherwise notify a reader thereof if any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate.

BOV Asset Management Ltd is licensed to conduct investment services in Malta by the Malta Financial Services Authority.  Website: www.bovassetmanagement.com. Source: BOV Asset Management Ltd.

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