- Compliance & Regulation, Technology
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What is recovery planning, or RP? Simply put, it’s an extension of Basel II/III-era stress testing, which involves development and implementation of an action plan to manage severe stress. It focuses on ensuring that critical bank services are quickly restored and/or avoid severe impact. Like many existing risk management processes such as scenario generation, stress testing can be reused or repurposed for RP—which is generally handled by specially constituted teams with support from risk and other functions.
But what if the operating model for RP could be bolstered in process efficiency? Here we’ll look at the feasibility of adopting robotic process automation (RPA) and intelligent robotic process automation (IRPA) in the context of the current regulatory landscape.
The U.S., UK, and Europe (along with Hong Kong) represent the forefront of framing regulations in the recovery planning area. Key highlights of global recovery planning regulations are:
Supervisory reviews conducted by global regulators (mentioned above) in banks have observed key challenges pertaining to the following:
Though regulators focus on various elements of recovery planning, all global regulatory bodies highlight certain core facets. These boil down to identifying early warning indicators for stressed scenarios and developing a playbook. That “playbook” is a dynamic repository that contains a list of all possible recovery options and steps to execute. To do this effectively, recovery management systems must interact with all of a bank’s internal applications (risk, finance, compliance, treasury systems) and external ones (third-party systems that provide details of macroeconomic indicators such as interest rates, inflation, GDP)—and then identify the potential early warning signals and triggers for initiating recovery options. The list of early indicators should interface with regulatory stress scenarios used by the bank and cover areas such as capital, liquidity, profitability, asset quality, and macroeconomic factors.
Recovery planning in banks involves multiple stages; hence, an incremental and phased-in RPA/IRPA approach is suggested as the way forward. Repetitive, recurring processes of recovery planning could benefit from RPA using standard techniques, and the adoption of IRPA could be explored for other value chain processes to replicate human cognizance.
Key recovery processes encompass:
Key sub-processes that could be explored for RPA/IRPA are:
Through adoption of RPA/IRPA, existing manual processes can be transformed into a near real-time, alert-driven system. This will result in:
Overall, the idea is to proceed with RPA and IRPA in a thoughtful, deliberate way that avoids rushing each critical step. Just because your bank cannot afford to fail a stress test doesn’t mean you have to subject your mission-critical employees to one.
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Dr. Subramanian Venkataraman is a senior consultant in the risk management practice of Tata Consultancy Services’ Banking Financial Services and Insurance Business Unit. Sasidharan Chandran is a domain consultant with the risk and regulatory compliance practice of the Banking, Financial Services and Insurance (BFSI) unit at Tata Consultancy Services.
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