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Achieving operational resilience in the financial industry: Insights from complex adaptive systems theory and implications for risk management

Author

Listed:
  • Butler, Tom

    (University College Cork, Ireland)

  • Brooks, Robert

    (Accenture, UK)

Abstract

Financial institutions face a perfect storm of nonfinancial risks: climate change, COVID-19, Brexit, digital transformation and cyberattacks generate new threats and exacerbate the impact to existing systemic and organisational vulnerabilities. Regulators recognise the magnitude of the risks that institutions face and are demanding that they become resilient — that is, they are able to absorb, adapt or recover from threats, stressors or shocks. This, however, is more easily said than done. The objective of this paper is to inform senior risk professionals on how resilience might be achieved by providing a much-needed frame of reference for those planning to transform their complex and chaotic organisations to resilient complex adaptive systems. Inter alia we delineate a logical model, based on conceptualising firms as resilient complex adaptive systems (RCASs), which elaborates the necessary and sufficient conditions for resilience in organisations. This general model can be applied to substantive areas of operations within financial enterprises to make them resilient in the face of endogenous and exogenous risk events, while meeting regulatory requirements.

Suggested Citation

  • Butler, Tom & Brooks, Robert, 2021. "Achieving operational resilience in the financial industry: Insights from complex adaptive systems theory and implications for risk management," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 14(4), pages 395-407, September.
    • Handle: RePEc:aza:rmfi00:y:2021:v:14:i:4:p:395-407
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    More about this item

    Keywords

    operational risk; resilience; complex adaptive systems; operational capabilities; organisational learning; digital transformation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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