Operational resilience of the financial sector

We make sure banks and financial services firms in the UK can overcome disruption

Overview

Operational resilience is the ability of firms and the entire financial sector to prevent, adapt, respond to, recover from and learn from disruptions.

Financial firms and financial market infrastructures (FMIs) must have robust plans to deliver important services, no matter the disruption. This includes man-made threats such as physical and cyberattacks, IT system outages and third-party supplier failure. It also includes natural hazards such as fire, flood, severe weather and pandemic. These can affect firms’ safety and soundness, undermine policyholder protection and, in some cases, affect financial stability.

The Bank of England and our Prudential Regulation Authority (PRA) carry out this work with the UK's two other financial authorities: the Treasury and the Financial Conduct Authority (FCA).

Our approach assumes that sometimes disruptions that prevent firms from operating as usual will occur and mean they cannot provide their services for a period.

External links

Prudential and Resolution Policy Index related links

Strategic outcomes

  1. Build firms' resilience: when severe but plausible disruption occurs, it should not affect financial stability, safety and soundness or policyholder protection. Firms must ensure high standards of IT and cyber resilience, third-party dependency risks.
  2. Build systemic operational resilience: firms and the Bank work to ensure that when systemic operational risks crystallise, they do not impact the UK's financial stability. Third parties must be sufficiently resilient to support this outcome. It is important that firms can contribute to sector-wide incident response and can learn and evolve from failures.
  3. Manage risks: limit the likelihood and impact of losses. Firms must set aside capital so that the crystallisation of risks is unlikely to affect firm safety and soundness.

The following outputs are designed with these outcomes in mind:

Firm level

System level

• Collective action and incident response
• Sector exercising
• Critical Third Party oversight
• Cyber Operational Resilience Stress Test
• FPC Impact tolerances

Monetary Policy Committee voting history

Firm level

Operational resilience policy

Our Financial Policy Committee (FPC) looks at the entire system. Our Prudential Regulation Committee (PRC) and Financial Market Infrastructure Committee (FMIC) focus on the firms and FMIs we regulate.

In summary, we ask firms to:

  • identify important business services: boards and senior management must prioritise services that, if disrupted, would affect our objectives and the public interest;
  • set impact tolerances: firms must say to what extent they could continue important business services after severe but plausible disruptions; and
  • make sure they can stay within impact tolerances: firms must map their important business services and test their capacity to continue to the agreed extent – they should address any vulnerabilities they have identified.

The operational resilience policy SS1/21 requires firms to prepare a written operational resilience self-assessment of compliance. The aim is to document a firms’ resilience journey, identifying risks that could prevent them from delivering important business services within tolerances in severe but plausible scenarios. It helps the firms’ boards and senior management make informed investment decisions to address resilience gaps.

We assess the status of a firm’s implementation of our policy. This includes reviewing:

  • their important business services, impact tolerances and additional metrics
  • scenario testing details, results and assurance that the firm can remain within impact tolerances in severe but plausible scenarios
  • firms’ identification of risks, threats, and vulnerabilities through mapping, testing and live incidents
  • response and recovery actions, remediation plans and timelines

Self-assessments allow us to identify good practices at an individual firm level while also facilitating thematic comparisons, helping us build a clearer picture of the wider systemic operational resilience picture across the industry. 

Incident management and reporting

The PRA has published a policy that details requirements for reporting certain operational incidents, and notification and reporting of material third-party arrangements. It sets out expectations for regulatory reporting, which aim to enhance the PRA’s understanding of firm and sector threats and vulnerabilities. 

Third-party management

The PRA’s current policy is set out primarily in Supervisory Statement (SS) 2/21: Outsourcing and third party risk management, which was published in March 2021. The Bank has a near-identical set of policies for FMIs, such as clearing houses and payment systems. 

Operational risk framework

Our role is to assess whether a firm's operational risk management framework allows them to effectively identify, assess, monitor, report and manage material operational risks to which it is or might be exposed, in line with board-approved strategy and risk appetite.

We are also responsible for assessing whether firms hold sufficient capital to mitigate the impact when operational risks crystallise.

This supports the Internal Capital Adequacy Assessment Rules, which require us to assess whether firms’ own funds and internal capital is adequate to cover the level of the risks to which it is or might be exposed and is reflective of the firm’s operational risk profile.

Cyber resilience

Firms and FMIs should assess their cyber risk and build adequate resilience capabilities to prepare for, and respond to, potentially disruptive cyber incidents. To maintain the financial sector's cyber resilience and to support our supervisory oversight, we have developed cyber assessment tools. They include CBEST, STAR-FS and CQUEST.

CBEST

This provides a framework for regulators to work with firms using a simulated cyberattack. This allows firms to explore how to counteract an attack on the people, processes and technology of cyber security controls. We base the simulated attacks on present threats.

The aim is to test:

  • a firm's defences
  • its threat intelligence capability
  • its ability to detect and respond to external and internal attackers

Firms use the assessment to plan how they can strengthen their resilience.

An accredited service provider carries out the simulation, acting within legal, ethical and moral constraints. It aims to get through a firm's defences using the cyber kill chain. They also assess if the confidentiality, integrity or availability of systems and processes that deliver a firm's important business services can be compromised.

CBEST thematic review

The annual CBEST thematic is intended to inform the sector on the findings and lessons learned from our CBEST programme, which assesses the cyber resilience of key financial institutions through security testing performed in ‘live’ corporate environments.

STAR-FS

STAR-FS (simulated targeted attack and response assessments for financial services) is part of the PRA and FCA supervisory toolkit, to assess the cyber resilience of firms' important business services. This allows regulators and firms to better understand vulnerabilities and take remedial actions, thereby improving their resilience and, by extension, the wider financial system. 

It promotes a threat-led penetration testing approach that mimics the actions of actors' intent on compromising an organisation's important business services as well as the technology assets and people supporting them.

An implementation guide and supporting templates are available. If your firm is interested in conducting a STAR-FS please contact your supervisor. It aims to provide:

  • an outcome-based assessment of financial institutions' protection, detection and response technical capabilities against cyber-attacks;
  • an approach, conducted through a firm-led delivery model, that can identify cyber resilience vulnerabilities within systems, people and processes;
  • reduced regulatory and firm effort relative to other supervisory technical assessments such as CBEST;
  • levels of independent technical assurance beyond those ordinarily included in firms' own penetration testing programmes; and
  • a testing approach accessible by a larger number of financial institutions to experience and learn from.

CQUEST

We use the CQUEST (Cyber resilience questionnaire) to gauge the cyber risk and resilience capabilities of the sector. Firms can also use it as a self-assessment tool to consider their own cyber risk and resilience maturity. It comprises 50 questions with multiple-choice answers across six domains:

  • governance and leadership
  • identify
  • protect
  • detect
  • respond
  • recover

To achieve a reliable outcome, an organisation should identify and direct a competent party with appropriate knowledge of the business to complete the CQUEST. When it is used to inform regulatory activities, supervisors might provide additional guidance and/or they could request evidence or clarifying information in response to the answers.

The latest version of CQUEST builds upon the previous one, and encompasses lessons learned from good practice frameworks and feedback from supervisors and firms.

CBEST Logo

System level

Collective action and incident response

The Cross Market Operational Resilience Group (CMORG) leads sector-wide collective action on operational resilience. It comprises about 25 members: firms across retail, wholesale, FMIs, insurance, the financial authorities and the National Cyber Security Centre. Its co-chairs are senior executives of the PRA and UK Finance. 

CMORG has three core objectives:

  • identify risks to the resilience of the financial sector.
  • develop solutions to improve the operational resilience of the sector.
  • share knowledge

Industry has developed CMORG-endorsed capabilities (including good practice guidance, response frameworks and contingency tools) to support the operational resilience of the UK's financial sector. The financial authorities support the development of these capabilities and efforts to improve resilience. However, their use is optional and they do not constitute regulatory rules or supervisory expectations. As such, they may not necessarily represent formal endorsement by the authorities.

Specialist subgroups support CMORG. They design, manage and deliver operational resilience improvements for the sector. Their work is voluntary. Their chairs meet regularly to discuss CMORG's activities and identify areas for more collaboration. A project management office (PMO) also supports CMORG. It is jointly resourced by us and UK Finance. 

The Financial Services Cyber Collaboration Centre (FSCCC) is a CMORG-led partnership. It aims to help identify, investigate and co-ordinate the response to incidents that may have consequences for the financial sector. It analyses and distributes information to produce timely outputs for the sector's benefit. 

Incident response

What happens if there is a disruption? 

Firms should get in touch with their usual business or supervisory contacts at the Bank or the FCA. The sector's response is facilitated by the Sector Response Framework (SRF). It sets out how organisations across the sector and government are connected. It also explains how they may respond to incidents when the impact becomes broader than a single firm or FMI and requires co-ordination, information-sharing or collective action.

Its purpose is to: 

  • allow firms, FMIs and the sector to make collective, timely and informed decisions in response to incidents
  • provide a reference to good practice, contingency tools and plans, which may be invoked as part of a sector response
  • include decision makers and subject matter experts
  • be organised on a modular basis, so that components of the SRF can respond
  • be recognised by the financial authorities as the principal structure by which the sector will respond to incidents
  • support collaborative engagement between the sector and the UK's financial authorities (see below)
  • be able to engage with frameworks in other jurisdictions, if required

The UK's three financial authorities are the Bank (including the PRA), the FCA and the Treasury. If disruptions could affect the whole sector, these authorities act together.

 

Sector exercising

The Bank works with the sector to co-ordinate and deliver exercises to strengthen the operational resilience of the UK's financial system. 

The most prominent is SIMEX – a biennial, market-wide simulation conducted through a public-private partnership between industry participants and financial authorities. SIMEX performs a unique role in bringing the sector together to address the most challenging and complex risks that individual firms cannot manage alone. 

These sector-wide exercises are based on our collective approach to resilience, working together with industry to identify emerging risks and build capabilities to enhance the system’s overall resilience.

Critical third-party oversight

The Bank, the PRA and the FCA (the regulators) are responsible for overseeing critical third parties (CTPs) to the UK's financial sector, following their designation by HMT. 

Regulated firms and FMIs are increasingly dependent on a small number of third parties for the delivery of functions and services that are essential to the stability of, or confidence in, the UK's financial system. In some cases, third parties can become so critical that no single firm can adequately monitor or manage the systemic risks they pose. 

The aim of oversight is to reduce systemic risks arising from the failure of, or disruption to the systemic services they provide to firms. The regulators will assess CTPs against outcomes-focused rules and expectations with the aim of ensuring the systemic services CTPs provide to the financial sector are resilient and therefore any failure of, or disruption to, those services does not threaten the stability of the UK's financial system.  

The CTP regime complements, and does not replace, the existing requirements and expectations for firms on SS1/21 operational resilience and SS2/21 outsourcing and third-party risk management policy.  

Find out more about the CTP regime:

Cyber and operational resilience stress test (CORST)

The cyber and operational resilience stress test (formerly the Cyber Stress Test 'CST') is a key part of the Bank’s toolkit on macroprudential operational resilience. The outcomes of cyber and operational resilience stress testing inform the FPC’s monitoring of sector operational resilience and its articulation of its tolerance for disruption to vital services. The objectives of testing are to:

  • Provide insight into sector vulnerabilities and the financial stability impacts and residual risk of severe but plausible operational disruption to vital services. 
  • Explore firm and sector capabilities to respond to, and recover from operational disruption, and to mitigate financial stability impacts.
  • Share lessons to support firms in maturing their approach to operational resilience and financial stability, including firms’ role as systemic risk managers.

Firms are invited to participate in CORST on a voluntary basis, and they self-identify lessons and remediation actions. Actions that require cross-firm cooperation are often progressed through established collective action forums or voluntary groups.

The test aims, over time to explore all systemically important firms and provide insight into not just the impacts of disruption to the services they provide, but also the impacts to their customer firms and from their third parties. Participation may be direct, indirect through co-operation with a direct participant, or through engagement at cross-firm workshops.

The CST24 thematic letter, which provides thematic findings from the 2024 test, also provides resources to support firms’ role in mitigating potential financial stability impacts of disruption to their services.  

FPC Impact tolerance for financial stability

The FPC updated its impact tolerance for payments and settlements following CST22. This was published in the March 2023 FPC Record.

  • The FPC expected the financial system to have the capability to complete critical payments by the end of the value date in severe but plausible scenarios; timely recovery of service delivery was the first best way firms could prevent adverse material economic impacts. 
  • In such instances where restoring services would be harmful for financial stability, or impossible, alternative mitigating actions might be appropriate. Firms should therefore plan, prepare and test for such situations and invest so that their response could effectively mitigate any impact on financial stability until service delivery was restored.
  • An example of mitigation may be providing an overdraft to a retail Banking customer, so that they may still be able to make purchases, despite a disruption to the payment systems which may have prevented the normal ‘payment’ being completed.

In the Financial Stability in Focus (FSIF), the FPC noted it would regularly review the operational resilience policy toolkit – with regard to new threats, changes in technology and changes in how the financial system provides vital services – and will explore ways to continue to build system-wide resilience to operational disruption. 

In addition to the tools mentioned above, the FPC does this for example through assessing potential system-wide gaps in, or risks to, operational resilience which are not adequately covered by firm-level or microprudential policies and considering whether to set impact tolerances for additional vital services beyond payments.

The committee has published its macroprudential approach to operational resilience in FSIF and sets out its priorities twice a year in its Financial Stability Report.

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This page was last updated 10 July 2026