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SYSC 15A.1 Application

Application

SYSC 15A.1.2 R

1In this chapter, a reference to a firm includes a UK RIE, an electronic money institution, a payment institution,2 a registered account information service provider and a consolidated tape provider2.

SYSC 15A.1.3 R

1This chapter does not apply to a TP firm, a TA PI firm, TA RAISP firm or a TA EMI firm.

SYSC 15A.1.4 R

1This chapter does not apply to a firm which has its registered office (or, if it has no registered office, its head office) outside the United Kingdom.

SYSC 15A.1.5 R

1In this chapter, a reference to a client in relation to a UK RIE includes a person who is entitled, under an arrangement or agreement between them and that UK RIE, to use the UK RIE’sfacilities.

SYSC 15A.1.5A R

2This chapter applies in relation to a consolidated tape provider as if a reference to a client includes a person who purchases a consolidated tape for bonds from:

  1. (a)

    a consolidated tape provider; or

  2. (b)

    a data vendor.

SYSC 15A.1.6 R

1In this chapter, a reference to a client in relation to a firm carrying on the activity of managing a UK UCITS or managing an AIF includes:

  1. (1)

    a unitholder; and

  2. (2)

    an investor in an AIF.

SYSC 15A.1.7 R

1The requirements in this chapter apply with respect to:

  1. (1)

    regulated activities;

  2. (2)

    activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc.);

  3. (3)

    ancillary activities;

  4. (4)

    in relation to MiFID or equivalent third country business, ancillary services;

  5. (5)

    collective portfolio management;

  6. (6)

    the provision of payment services and the issuance of electronic money, and activities connected to the provision of payment services and to the issuing of electronic money (whether or not the activity of issuing electronic money is specified in article 9B of the Regulated Activities Order);

  7. (7)

    any other unregulated activities, but only in a prudential context; and2

  8. (8)

    2data reporting services provided by a consolidated tape provider.

SYSC 15A.1.8 R

1Notwithstanding SYSC 15A.1.7R, where the requirements in this chapter apply to a firm only as a result of SYSC 15A.1.1R(3), the requirements only apply to the provision of payment services and the issuance of electronic money by the firm, and activities connected to the provision of payment services and to the issuing of electronic money (whether or not the activity of issuing electronic money is specified in article 9B of the Regulated Activities Order).

SYSC 15A.1.9 R

1There is no territorial limitation on the application of this chapter.

SYSC 15A.2 Operational resilience requirements

Important business services

SYSC 15A.2.1 R

1A firm must identify its important business services.

SYSC 15A.2.2 R

1A firm must keep its compliance with SYSC 15A.2.1R under review and, in particular, consider its compliance in the following circumstances:

  1. (1)

    if there is a material change to the firm’s business or the market in which it operates; and

  2. (2)

    in any event, no later than 1 year after it last carried out the relevant assessment.

SYSC 15A.2.3 G

1In the course of identifying its important business services under SYSC 15A.2.1R, a firm should treat each distinct relevant service separately, and should not identify a collection of services as a single important business service.

SYSC 15A.2.4 G

1The factors that a firm should consider when identifying its important business services include, but are not limited to:

  1. (1)

    the nature of the client base, including any vulnerabilities that would make the person more susceptible to harm from a disruption;

  2. (2)

    the ability of clients to obtain the service from other providers (substitutability, availability and accessibility);

  3. (3)

    the time criticality for clients receiving the service;

  4. (4)

    the number of clients to whom the service is provided;

  5. (5)

    the sensitivity of data held;

  6. (6)

    potential to inhibit the functioning of the UK financial system;

  7. (7)

    the firm’s potential to impact the soundness, stability or resilience of the UK financial system;

  8. (8)

    the possible impact on the firm’s financial position and potential to threaten the firm’s viability where this could harm the firm’sclients or pose a risk to the soundness, stability or resilience of the UK financial system or the orderly operation of the financial markets;

  9. (9)

    the potential to cause reputational damage to the firm, where this could harm the firm’sclients or pose a risk to the soundness, stability or resilience of the UK financial system or the orderly operation of the financial markets;

  10. (10)

    whether disruption to the services could amount to a breach of a legal or regulatory obligation;

  11. (11)

    the level of inherent conduct and market risk;

  12. (12)

    the potential to cause knock-on effects for other market participants, particularly those that provide financial market infrastructure or critical national infrastructure; and

  13. (13)

    the importance of that service to the UK financial system, which may include market share, client concentration and sensitive clients (for example, governments or pension funds).

Impact tolerances

SYSC 15A.2.5 R

1A firm must, for each of its important business services, set an impact tolerance.

SYSC 15A.2.6 R

1A firm must keep its compliance with SYSC 15A.2.5R under review and, in particular, consider its compliance in the following circumstances:

  1. (1)

    if there is a material change to the firm’s business or the market in which it operates; and

  2. (2)

    in any event, no later than 1 year after it last carried out the relevant assessment.

SYSC 15A.2.7 G

1The factors that a firm should consider when setting its impact tolerance include, but are not limited to:

  1. (1)

    the nature of the client base, including any vulnerabilities that would make the person more susceptible to harm from a disruption;

  2. (2)

    the number of clients that may be adversely impacted and the nature of the impact;

  3. (3)

    the potential financial loss to clients;

  4. (4)

    the potential financial loss to the firm where this could harm the firm’sclients or pose a risk to the soundness, stability or resilience of the UK financial system or the orderly operation of the financial markets;

  5. (5)

    the potential level of reputational damage to the firm where this could harm the firm’sclients or pose a risk to the soundness, stability or resilience of the UK financial system or the orderly operation of the financial markets;

  6. (6)

    the potential impact on market or consumer confidence;

  7. (7)

    potential spread of risks to their other business services, other firms or the UK financial system;

  8. (8)

    the potential loss of functionality or access for clients;

  9. (9)

    any potential loss of confidentiality, integrity or availability of data;

  10. (10)

    the potential aggregate impact of disruptions to multiple important business services, in particular where such services rely on common operational resources as identified by the firm’s mapping exercise under SYSC 15A.4.1R.

SYSC 15A.2.8 G

1When setting its impact tolerance, a firm should take account of the fluctuations in demand for its important business service at different times of the day and throughout the year in order to ensure that its impact tolerance reflects these fluctuations and is appropriate in light of the peak demand for the important business service.

SYSC 15A.2.9 R

1A firm must ensure it can remain within its impact tolerance for each important business service in the event of a severe but plausible disruption to its operations.

SYSC 15A.2.10 G

1While under SYSC 15A.2.9R a firm must ensure it is able to remain within its impact tolerance, it should generally not do so if this would put the firm in breach of another regulatory obligation, conflict with the proper exercise of a discretion granted to it under any rule or regulation, or result in increased risk of harm to its clients or the soundness, stability or resilience of the UK financial system or the orderly operation of the financial markets. Under certain circumstances, a firm may wish to resume a degraded service. This is usually only appropriate if having regard to the interest of the firm’sclients, the soundness, stability and resilience of the UK financial system and the orderly operation of the financial markets, the benefits of resuming a degraded service outweigh the negatives of keeping the service unavailable until the issues have been fully remediated and the service is able to be fully restored to its pre-disruption levels.

SYSC 15A.2.11 G

1Under Principle 11 (Relations with regulators), the FCA expects to be notified of any failure by a firm to meet an impact tolerance.

SYSC 15A.2.12 G

1When setting impact tolerances under SYSC 15A.2.5R a payment services provider should have regard to its obligations under the EBA Guidelines on ICT and security risk management.

SYSC 15A.2.13 G

1 Payment service providers should have regard to the impact tolerance set under SYSC 15A.2.5R when complying with the EBA Guidelines on ICT and security risk management. In particular, they should, as part of their continuity planning and testing, consider their ability to remain within their impact tolerance through a range of severe but plausible disruption scenarios.

SYSC 15A.3 Strategies, processes and systems

SYSC 15A.3.1 R

1A firm must have in place sound, effective and comprehensive strategies, processes and systems to enable it to comply with its obligations under this chapter.

SYSC 15A.3.2 R

1The strategies, processes and systems required under SYSC 15A.3.1R must be comprehensive and proportionate to the nature, scale and complexity of the firm’s activities.

SYSC 15A.4 Mapping

SYSC 15A.4.1 R

1A firm must identify and document the people, processes, technology, facilities and information necessary to deliver each of its important business services. This must be sufficient to allow the firm to identify vulnerabilities and remedy these as appropriate.

SYSC 15A.4.2 G

1Where a firm relies on a third party for the delivery of an important business service, we would expect the firm to have sufficient understanding of the people, processes, technology, facilities, and information that support the provision by the third party of its services to or on behalf of the firm so as to allow the firm to comply with its obligations under SYSC 15A.4.1R.

SYSC 15A.4.3 R

1A firm must keep its compliance with SYSC 15A.4.1R under review and, in particular, review its compliance in the following circumstances:

  1. (1)

    if there is a material change to the firm’s business, the important business services identified in accordance with SYSC 15A.2.1R or impact tolerances set in accordance with SYSC 15A.2.5R; and

  2. (2)

    in any event, no later than 1 year after it last carried out the relevant assessment.

SYSC 15A.5 Scenario testing

Testing plan

SYSC 15A.5.1 R

1A firm must develop and keep up to date a testing plan that appropriately details how it will gain assurance that it can remain within the impact tolerances for each of its important business services.

SYSC 15A.5.2 G

1 Firms should ensure that the testing plan takes account of a number of factors, including but not limited to:

  1. (1)

    the type of scenario testing undertaken. For example, whether it is paper based, simulations or through the use of live-systems;

  2. (2)

    the scenarios which the firm expects to be able to remain within their impact tolerances and which ones they may not;

  3. (3)

    the frequency of the testing;

  4. (4)

    the number of important business services tested;

  5. (5)

    the availability and integrity of supporting assets;

  6. (6)

    how the firm would communicate with internal and external stakeholders effectively to reduce the harm caused by operational disruptions.

Testing

SYSC 15A.5.3 R

1A firm must carry out scenario testing, to assess its ability to remain within its impact tolerance for each of its important business services in the event of a severe but plausible disruption of its operations.

SYSC 15A.5.4 R

1In carrying out the scenario testing, a firm must identify an appropriate range of adverse circumstances of varying nature, severity and duration relevant to its business and risk profile and consider the risks to the delivery of the firm’simportant business services in those circumstances.

SYSC 15A.5.5 G

1Where a firm relies on a third party for the delivery of its important business services, we would expect the firm to work with the third party to ensure the validity of the firm’s scenario testing under SYSC 15A.5.3R. To the extent that the firm relies on the third party to carry out testing of the services provided by the third party to or on behalf of the firm, the firm should ensure the suitability of the methodologies, scenarios and considerations adopted by the third party in carrying out testing. The firm is ultimately responsible for the quality and accuracy of any testing carried out, whether by the firm or by a third party.

SYSC 15A.5.6 G

1In carrying out the scenario testing, a firm should, among other things, consider the following scenarios:

  1. (1)

    corruption, deletion or manipulation of data critical to the delivery of its important business services;

  2. (2)

    unavailability of facilities or key people;

  3. (3)

    unavailability of third party services, which are critical to the delivery of its important business services;

  4. (4)

    disruption to other market participants, where applicable; and

  5. (5)

    loss or reduced provision of technology underpinning the delivery of important business services.

SYSC 15A.5.7 R

1A firm must carry out the scenario testing:

  1. (1)

    if there is a material change to the firm’s business, the important business services identified in accordance with SYSC 15A.2.1R or impact tolerances set in accordance with SYSC 15A.2.5R;

  2. (2)

    following improvements made by the firm in response to a previous test; and

  3. (3)

    in any event, on a regular basis.

Lessons learned

SYSC 15A.5.8 R

1A firm must, following scenario testing or, in the event of an operational disruption, after such event, conduct a lessons learned exercise that allows the firm to identify weaknesses and take action to improve its ability to effectively respond and recover from future disruptions.

SYSC 15A.5.9 R

1Following the lessons learned exercise, a firm must make necessary improvements to address weaknesses identified to ensure that it can remain within its impact tolerances in accordance with SYSC 15A.2.9R.

SYSC 15A.6 Self-assessment and lessons learned exercise documentation

SYSC 15A.6.1 R

1A firm must make, and keep up to date, a written record of its assessment of its compliance with the requirements in this chapter, including, but not limited to, a written record of:

  1. (1)

    important business services identified by the firm and the justification for the determination made;

  2. (2)

    the firm’simpact tolerances and the justification for the level at which they have been set by the firm;

  3. (3)

    the firm’s approach to mapping under SYSC 15A.4.1R, including how the firm has used mapping to:

    1. (a)

      identify the people, processes, technology, facilities and information necessary to deliver each of its important business services;

    2. (b)

      identify vulnerabilities; and

    3. (c)

      support scenario testing;

  4. (4)

    the firm’s testing plan and a justification for the plan adopted;

  5. (5)

    details of the scenario testing carried out as part of its obligations under SYSC 15A.5, including a description and justification of the assumptions made in relation to scenario design and any identified risks to the firm’s ability to meet its impact tolerances;

  6. (6)

    any lessons learned exercise conducted under SYSC 15A.5.8R;

  7. (7)

    an identification of the vulnerabilities that threaten the firm’s ability to deliver its important business services within the impact tolerances set, including the actions taken or planned and justifications for their completion time;

  8. (8)

    its communication strategy under SYSC 15A.8.1R and an explanation of how it will enable it to reduce the anticipated harm caused by operational disruptions; and

  9. (9)

    the methodologies used to undertake the above activities.

SYSC 15A.6.2 R

1A firm must retain each version of the records referred to in SYSC 15A.6.1R for at least 6 years and, on request, provide these to the FCA.

SYSC 15A.7 Governance

SYSC 15A.7.1 R

1A firm must ensure that its governing body approves and regularly reviews the written records required under SYSC 15A.6 (Self-assessment and lessons learned exercise documentation).

SYSC 15A.8 Communications

SYSC 15A.8.1 R

1A firm must maintain an internal and external communication strategy to act quickly and effectively to reduce the anticipated harm caused by operational disruptions.

SYSC 15A.8.2 G

1As part of a firm’s communications strategy, the FCA expects the firm to:

  1. (1)

    consider, in advance of a disruption, how it would provide important warnings or advice quickly to clients and other stakeholders, including where there is no direct line of communication;

  2. (2)

    use effective communication to gather information about the cause, extent, and impact of operational incidents; and

  3. (3)

    ensure that their choice of communication method takes account of the circumstances, needs and vulnerabilities of their clients and other stakeholders.

SYSC 15A.8.3 R

1A firm must provide clear, timely and relevant communications to stakeholders in the event of an operational disruption.

SYSC 15A.9 Supervisory review and feedback

SYSC 15A.9.1 G

1The FCA may provide individual guidance as to whether a firm’s compliance with this chapter is adequate and, if necessary, require a firm to take the necessary actions or steps to address any failure to meet the requirements in this chapter.

SYSC 15A.9.2 G

1A firm should have regard to the views provided by the FCA in relation to the firm’s compliance. If a firm considers that any individual guidance given to it is inappropriate to its circumstances it should, consistent with Principle 11 (Relations with regulators), inform the FCA that it disagrees with that guidance. The FCA may reissue the individual guidance if, after discussion with the firm, the FCA concludes that the appropriate actions or steps a firm should take is different from that initially suggested by the FCA.

SYSC 15A.9.3 G

1If, after discussion, the FCA and a firm still do not agree, the FCA may consider other tools available to it, including its powers under sections 55J and 55L of the Act on its own initiative to require the firm to take specific steps in line with the FCA’s view to comply with the requirements in this chapter.