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SHADOW IT RISK SCENARIOS THAT CAN JEOPARDISE FINANCIAL INSTITUTIONS’ OPERATIONAL RESILIENCE

 

Enhancing the robustness of the UK financial sector is a major priority for the Bank of England (BoE) in the current environment. Its response – the Operational Resilience (OpRes) initiative – which demands that financial institutions clearly demonstrate that they understand their risk exposure, alongside their ability to proactively deal with and even pre-empt potential disruptions to their business. The BoE describes a resilient financial system as one that can ‘absorb shocks rather than contribute to them.’

 

These disruptions can include anything from physical fires, flooding, power interruption, data quality issues to Black Swan events such as 9/11 and a Brexit ‘crash out’ through to IT outages, failed technology restructuring (e.g. The TSB and Lloyds demerger) and even ‘fat finger’ issues – the list is endless.

 

In all these scenarios, Shadow IT – i.e. non-IT supported applications, often spreadsheets – that can feature in a range of business processes, including management and regulatory reporting, portfolio management, risk management, as well as product management – can threaten financial institutions’ Operational Resilience programmes, given how ubiquitous Shadow IT applications typically are.

 

To illustrate, here are some real-life scenarios:

 

Henry Umney

Fire & flooding: A fire or flood at an end user or server site, could cause an outage to a business-critical process, if a machine is directly impacted. While those affected will likely have backup and recovery processes in place, the disruption to the business will depend on the severity of the situation. With business-critical processes typically residing in a combination of maintained enterprise IT systems and Shadow IT applications, can the financial institution be sure that the recovered business process holds the right data in the right place to recover the business? What will the business impact of any lost data be?

 

Power outages: These can come in different forms – either within the business or due to an interruption to an external power source. Each situation would potentially affect different applications in different ways, and with differing impacts on the business. Again, with business services and processes residing is a variety of Shadow IT environments, identifying and recovering the right data can be fraught with difficulty, with plenty of scope for lost data, given that organisations do not necessarily back-up their data in real time.

 

Fat finger: Inputting errors owing to a ‘fat finger’ problem are not unusual, especially in Excel-based applications, where errors are hard to detect once saved. This has scope to propagate errors across the business very quickly, without anyone being aware, and with no audit trail as to how it was caused. This lack of visibility has scope to throw up a host of reputational, commercial and compliance issues around the Senior Managers & Certification Regime (SM&CR) and other Board-level governance requirements.

 

Data issues: While great care and attention is taken over data management – importing, cleansing and managing it effectively – its ability to propagate quickly across the organisation is unsurpassed. Where errors feature in new data – for example pricing information or FX rates – it has the potential to very quickly cause mis-pricing issues across multiple product sets and business units, which can undermine decision making, cause a range of automated transactions at the wrong price, undermine customer confidence and relationships, as well as cause a host of regulatory issues. Again, Shadow IT applications, which often feature in data import processes, can lack the controls necessary under OpRes to assure the resilience the initiative requires.

 

IT outages: Perhaps contrary to perception, IT environments at financial institutions are highly dynamic, utilising ‘just in time’ code updates and bug fixes, on a weekly and even daily basis to support the business. Extensive effort goes into developing, testing and deploying such changes. Of course, not all code updates and bug fixes always go smoothly with problems cropping up at the most inconvenient moments. While back-ups and recovery processes will be place, again the issue for institutions will centre on maintaining the business service and assuring the validity of the recovered results. Where Shadow IT applications feature in these changes – perhaps as tools and calculators that feed core business models – back-up and recovery processes are typically not in place and these outages can break applications links and data flows, that in turn can interrupt essential business processes.

 

Financial institutions have traditional IT and business processes in place in response to Operational Resilience demands from regulators. The recovery frameworks of these well maintained and managed IT processes are also understood. Where Operational Resilience is threatened is when the two disciplines – i.e. enterprise IT and Shadow IT are connected – as they rarely share the same levels of controls and as such all the hard work put into ensuring the resilience of enterprise IT can be undermined by failures in shadow IT.

 

Automating Shadow IT maintenance and management provides the same principles of management control that are found in enterprise applications, while ensuring users can still enjoy the flexibility that users value in Shadow IT. It allows organisations to meet their obligations under OpRes, alongside many other regulatory and commercial obligations where Shadow IT prevails.

 

About the author

Henry Umney is CEO of ClusterSeven. He joined the company in 2006 and for over 10 years was responsible for the commercial operations of ClusterSeven, overseeing globally all Sales and Client activity as well as Partner engagements and in July 2017, he was appointed. He brings over 20 years’ experience and expertise from the financial service and technology sectors. Prior to ClusterSeven, he held the position of Sales Director in Microgen, London and various sales management positions in AFA Systems and ICAP, both in the UK and Asia.

 

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Finance

HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES

CASH FLOW

While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.

 

Managing people and expenses

There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.

You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.

Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.

 

Cash is king

In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.

 

Daily forecasting

As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.

 

Good house-keeping

While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).

Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.

 

Embrace technology

Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:

  • Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
  • Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
  • Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.

All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper.  You will also be able to bring clarity to where your business stands and prepare for the next steps.

 

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Finance

HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK

FINANCIAL SERVICES

By Alex Saric, smart procurement expert, Ivalua

 

UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.

This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.

 

More suppliers, increasing risk

One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.

The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.

A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.

 

Businesses unprepared for the worst

One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).

In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.

 

Making supplier management smarter

It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.

For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.

To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.

 

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