Most US financial services firms’ emergency response plans flopped in the wake of coronavirus lockdowns, according to a new Deloitte study.
The Deloitte pop quiz of over 100 large US financial services businesses found that while almost 75 per cent of those surveyed were “better than moderately prepared” to cope with COVID “only 16 percent felt their response plans worked well”.
“Not surprisingly, the most common gaps were in the plans’ ability to anticipate responses specific to a global pandemic along with shelter-in-place orders,” the study says.
Close to 60 per cent of respondents did not have pandemic-specific protocols in business continuity plans (BCPs) and almost half failed to account for long-term work-from-home scenarios.
Over a third of those surveyed also cited technology challenges, in particular “when it came to dealing with increased trading volumes and demand for loans”.
“For example, broker-dealers and exchanges found themselves scrambling to process US$1 trillion worth of transactions overnight, about four times the volume ever planned for; capacity had to be quickly added,” the paper says. “Firms that had a mature cloud strategy were better positioned to handle the shift. In some cases, manual processing had to fill in the gaps for a variety of tasks, such as trade settlement fails, where volumes rose by two to three times the normal levels.”
The NZX experienced similar problems last month as broker communication glitches delayed trade settlements during a hyperactive market trading period.
While Deloitte warns that the study is not “scientific in any way”, the findings mirror another US survey that reported just a quarter of financial services firms turned to existing BCPs as the coronavirus crisis arrived.
“About 40 percent used modified plans and a third created new ones on the fly,” the Deloitte paper says.
As reported last month, many NZ financial services also had to adapt BCPs to cope with novel COVID-19 shutdown side-effects including technology bottlenecks triggered by prolonged work-from-home orders.
But the majority of local financial firms appear to have coped well under lockdown. For example, Investor Services Group (ISG) – the conglomerate that houses Devon Funds, Clarity Funds, Select Wealth, JMI Wealth and Tahito – experienced a “seamless transition” to remote working, according to a release.
Richard O’Brien, ISG chief, said the group’s 43 ISG staff were able to keep operating during the COVID close-down thanks to systems established by IT partner, Intellum Technology.
“The infrastructure was here to make this possible across the group some months ago, but now staff have realised how widely available it is and how easy it is to use, people will absolutely continue to work differently in the longer term,” he said.
In fact, ISG was “absolutely ready to realise our growth aspirations over the next couple of years” coming out of lockdown, O’Brien said in the statement.
The $5.5 billion group was “now in a position to consider acquisitions”, the statement says.
However, the Deloitte US study found that existing financial services business crisis response plans “did not contemplate the special precautions needed in a pandemic, and if they did, they were not consumable or actionable and missed the emotional and human effects”.
But the industry was adapting quickly as the crisis rolls on, the report says, with some significant behavioural and operational changes likely to emerge across three key areas, namely: technology; work practices; and, “controls” design.
“We anticipate a doubling-down on the speed of digital transformation over the coming months and years,” Deloite says. “These efforts will include increased spending on cloud technology; data center evolution; digitization of client experience, from onboarding to servicing; smart use of tools to improve the agility of response, communication, and reporting during an event; and investments to support more updated business impact analysis data, which will help firms assess and respond to a range of potential future scenarios.”
Financial services firms would have to rethink the ‘what, where, how and who’ of work processes as well as ways to control information flows across as disparate employee network.
“Many firms have learned that important knowledge is embedded in people’s institutional memories and 30-year old processes that lack playbooks, many of which are still done manually,” the study says. “Controls will need to be redefined to function with a remote workforce.”
The paper was authored by a panel of Deloitte specialists including Rhoda Woo, head of crisis management for the global consultancy firm’s Risk and Financial Advisory unit.