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Brexit Day – the day the UK is currently scheduled to exit the European Union (EU) – is really just the beginning of a much longer process for companies based in the UK or who work with third parties located there.
Brexit Day is (currently) October 31, but the UK’s departure – with a deal – could take place any time up until that date. Leaving without a deal on October 31 is still a possibility too. Once the UK has left the EU, organisation can expect the pace of change to increase significantly as the UK adjusts to its new status. The coming political, regulatory, and economic uncertainty underscores the need for organisations to be prepared by becoming more operationally resilient, particularly when it comes to managing third-party risk.
Understanding operational resiliency
Operational resiliency is a concept that began to gain traction with the publication of Nassim Nicholas Taleb’s book, Anti-Fragile, in 2013. This book grew out of Taleb’s realization that managing risk – trying to anticipate events – can only do so much. Risks, by their very nature, sometimes materialize. So, it’s important for organisations to be robust enough to withstand a risk event by being operationally resilient.
The concept of operational resilience is beginning to receive much more attention today. For example, the UK’s Financial Conduct Authority (FCA) released a discussion paper last year on operational resilience for financial services firms. Consultancies are also publishing on the topic, including Oliver Wyman’s Striving for Operational Resilience and EY’s paper, Brexit Impact: Operational Resilience. A global survey of business leaders on relative levels of operational resiliency among different countries and geographic regions by FTI Consulting is also an interesting and provocative read.
The concept of operational resiliency takes on a new dimension when applied to third-party risk management. Both the organisation and the third party need to be resilient. And the relationship between the two must be resilient, too. Good communication and transparency within the relationship are of paramount importance for operational resiliency. When applied to Brexit, for example, it’s easy to see how a good relationship with a third party could help make managing unexpected change easier and less risky, both in the short term and as the impact of Brexit unfolds.
Identifying post-Brexit risks
Once Brexit happens, organisations are going to have to be very vigilant about how all subsequent change impacts their third-party relationships. Key areas where organisations should pay particular attention to operational resiliency include:
These are just a few areas that Brexit will impact within organisations and their third parties. Brexit is going to be an ongoing source of change and development, which will continue to be felt for decades. Under these circumstances, operational resiliency is very important.
Managing the complexity of the change associated with Brexit and third-party relationships over time will not be easy. Organisations need to measure and manage these risks, and then be able to report on them to stakeholders such as the board and senior management, so that the right strategic and tactical decisions can be taken. Managing the risks that will evolve from Brexit – as well as seizing the opportunities – will require a more sophisticated approach to third-party risk management. Organisations that are operationally resilient will be much better placed to do both.