The ongoing threat of terrorism, the impact of last year’s hurricane season, and the pending avian flu pandemic have once again turned the attention of the public, the regulators, and managers nationwide toward Business Continuity Planning (BCP). This intensified focus directs leaders throughout every industry to review their situations and begin making progress toward a level of preparedness that will protect their critical people, products, and systems from the effects of unforeseen events regardless of their catastrophic severity. BCP describes an integrated strategy that spans entire organizations in order to ensure the resiliency of its business operations in the wake of a disruption.
The BCP process is made up of several concepts that may or may not be within any particular credit union’s scope of available resources. Depending on staff expertise, the presence of various technological systems, and the time required to build an adequate level of knowledge regarding industry best practices and regulations, the entire BCP concept may be well beyond the resource limitations of most credit unions. As credit unions begin to work through developing, testing, and maintaining their business continuity plans, seeking the guidance and assistance of external resources can dramatically improve the overall process. Various regulatory publications, industry associations, workgroup recovery location providers, and consulting firms are able to provide invaluable expertise through the assistance they can provide. In the wake of a disaster, having established contractual relationships with outside service providers will help every credit union in their recovery effort by expanding the intellectual and physical assets at the disposal of the management team.
As an example of the value that third-party organizations can deliver following a major disruption, consider the role that CNBS’ collective expertise played in the aftermath of Hurricane Katrina striking the Gulf Coast in 2005. CNBS was uniquely positioned to assist Louisiana Corporate Credit Union as they dealt with the impact of the storm on their business, staff, members, and community. As we worked with LaCorp following Katrina, every department at CNBS became involved in providing assistance ranging from technology support to advice centered around liquidity concerns and balance sheet management strategies. This process and the overall resiliency of LaCorp underscored the value that external relationships can provide in the face of a seemingly insurmountable catastrophic event.
LaCorp’s recovery experience also provided several other lessons that replicate the important themes expressed in recent regulatory actions. During April, the NCUA issued a Risk Alert (#06-Risk-01) to remind all credit unions of the regulator’s expectation that each member of the industry has focused a significant amount of energy on analyzing the likelihood of any unexpected event affecting the credit union’s ability to fulfill its obligations as a financial institution. The NCUA should be applauded for its continued efforts to ensure the resiliency of the credit union network and its important role in the overall financial sector of the economy. Beyond the scope of the NCUA’s endeavors, the various financial services industry regulators have dramatically increased their emphasis over the past several months on ensuring the preparedness of industry participants to address potential business disruptions. Led by the work of the Federal Financial Institutions Examination Council and several other interagency initiatives, organizations providing financial services of all types are required to adequately assess the potential for various types of disruptions to affect each institution’s ability to service its customers.
The NCUA has promised to publish its BCP examination questionnaire in an upcoming letter to credit unions, but its current guidance introduces a methodology known as “PREPARE” by which it will review the BCP efforts of each credit union. The pillars of the “PREPARE” framework are listed below with a short discussion of each concept: Planning – The credit union must document its anticipated operational response to the universe of likely disaster scenarios and its ability to provide financial services following the event. Resources – The credit union must demonstrate its access to the physical spaces and assets necessary to execute its plan. These resources must provide insulation from geographic and infrastructure standpoints in order to prevent the possibility of a related event preventing their utilization. Evaluation – The credit union must explore the effectiveness of its plan for restoring the operation of all critical processes and systems. People – The credit union must display an enterprise-wide readiness and education levels across its staff, management and board of directors. Alliances – The credit union must explain all external relationships with other parties that will assist the credit union in its efforts to resume operations. Review – The credit union must show that its recovery plans are living documents that are periodically reviewed and updated to incorporate changes in the credit union’s risk profile. Experience – The credit union must utilize its collective experiences and test results to enhance the planning process and ultimately increase the effectiveness of the BCP program. Credit unions face very specific challenges as they attempt to navigate the often confusing world of BCP. Credit unions must consider the recovery and stability of office space, technology operations, institutional liquidity, balance sheet composition, staff lodging, and the well-being of its staff and their families. The breadth and depth of understanding required to develop an adequate plan generally only rests within the collective wisdom of the senior management team and the board of directors. Since these top level individuals tend to be involved in a multitude of projects at any given time and are often too busy to work continuously on a single large project, most organizations have had the historical tendency to look to their technology departments to lead the entire disaster preparedness initiative. While data consistency and security are key pieces of almost all modern business operations, a robust BCP program must be driven by the same individuals who are responsible for guiding the entire organization.
While regulatory actions often encourage many credit unions to address the various risks that they face, the concept of BCP goes well beyond any regulator’s ability to protect an institution and the interests of its members from all possible scenarios. By combining the lessons learned from our involvement with LaCorp following Katrina with our competencies as the premier broker/dealer and investment adviser for credit unions, we were able to design a suite of products intended to help ensure the resiliency of our industry should events unfold that threaten the well being of industry members.