financial institutions creating value in the post-9.11 world
A Swift / Promethee report
Yves Dana
"Stèle VIII", 1996
Bronze,
85 x 28 x 12 cm
in a strategic conversation with
Tjerk Veenstra
Director, Corporate Resilience Programme, SWIFT
After 9.11, corporations in general, and in particular financial institutions and market infrastructures, have to take new forms of threat into account and are invited to rapidly consider the “unthinkable” and reassess their operations' resilience. What does resilience encompass?
Tjerk Veenstra: The scope can be very large. Indeed, when talking about resilience, you are talking about general threats to humanity as much as about economic stability, or the role of financial institutions and infrastructures that support the whole economy. This may cover technology, processes or people. Such complexity can be a source of confusion. Hence the importance of strong analytical work and of practitioners' insights as pursued in this report.
Even if one focuses on the technological dimension of resilience, one still has to deal with multiple layers: the physical layer, the messaging layer, the application layer and – above and beyond these classical layers – with what may happen to the financial ecosystem and to the economy at large. All these have a direct impact on a country's stability and on the homeland and people protection. This is a major matter of concern, whether for the U.S, for Europe or for Asia.
Is resilience just a "shield" or is it also a contributor to value creation?
Tjerk Veenstra: The value of a resilient operation should be expressed in financially measurable terms, even if there are many different aspects to that value, from the very tangible to the most intangible. What is the value of air safety? On the one hand, it protects human lives, but on the other hand, on a day-to-day basis, it also brings comfort to the customer. What are the advantages of resilience? It protects against a meltdown of a system that would cost our societies dearly, and it also brings value to the customer. It reduces the cost of downtime, even under dire circumstances. Peace of mind. That is part of the value of resilience too.
Tjerk Veenstra: There are analogies. We have to understand what our role in the financial ecosystem is, how critical it is, and how it should evolve in the face of new threats.
The role we play at SWIFT is to manage an interface that is becoming all the more critical. To do our work properly, we need to understand our contribution to the resilience of the whole system and the type of perspective you refer to can help us do this in a disciplined manner. I think the “Four Pillars II” program that we established immediately after 9.11 represents such an effort to understand the domains on which we have to concentrate and take our resilience to the higher level.
SWIFT had conducted a first Four Pillars programme, from 1995 through 1996, in order to take reliability and availability to a higher level. At that time, the four aspects of operational performance that stood out were increased capacity to handle higher growth in daily traffic, increased peak-hour capacity, transparent recovery from connection failure and rapid system recovery. This first program brought about substantial improvements in all four areas and laid the foundations for SWIFT's current success. Yet, in the aftermath of 9.11, we realized that we needed to look at a new set of four pillars to be sure to bring our service levels in line with higher expectations in the market in terms of reliability, and with the level of interdependencies tragically illustrated by 9.11. The new threats facing SWIFT and the financial community are far-reaching and they have to be reflected in our new agenda. This is where ecology can, indeed, be a useful metaphor.
What type of changes, what type of dialogue and what type of learning is this more complex view of resilience leading SWIFT to?
Tjerk Veenstra: The Four Pillars II programme, while it is still about achieving a higher level of service performance, now also focuses on resilience as a critical objective. The four headings cover much wider ground. What is at stake is not simply to improve performance at very high levels of safety, but also to systematically assess our resilience as a network in terms of, respectively:
• technical environment and service continuity;
• security, which means both technology and processes;
• people, with an emphasis on processes that protect the staff and guarantees integrity;
• crisis management process-related aspects.
Our present level of service continuity capabilities is designed to protect us against natural disasters, and we are very well protected on all continents. However, as Leonard Schrank makes the case, natural disasters do not strike in a coordinated manner, while terrorists do. As terror can strike in a coordinated fashion, we need to understand how to insure the service continuity even in those extreme circumstances. The second Four Pillars programme, therefore, looks at how we can take our extreme service-continuity requirements to a higher level than what we have today – it is service continuity beyond what was thinkable until recently.
With this program as our first priority, the next step is to analyze our role and how we should interact with our customers. Hence the dialogue launched with our customers, in the form notably of the Resilience Advisory Council. The objective is to understand their perspectives and requirements for a more resilient SWIFT network – this helps us to determine our criticality and, therefore, what we need to do now in a very precise manner.
Last but not least, we have to understand our role in the industry at large, and the interdependencies within the entire financial infrastructure. Here the experience with Y2K is highly relevant. At the time, we had intensive dialogue with both the public and the private sector, with customers and major infrastructures, and this dialogue defined what we had to do with our own system and processes.
SWIFT is an integral part of the entire infrastructure that supports the financial community, which in turn supports the whole economy and contributes to the stability of nations. We obviously do not have influence over world order; we can do nothing to curb terrorism as such, although we ourselves need to be protected against it and to understand its evolutions. But we play a critical role, nonetheless, in significant aspects of this interconnected economy.
The notion of "nested hierarchies" that you borrowed from the ecosciences is a very appealing way to become aware of all interdependencies between very different levels, while moving ahead in a decisive manner on our own, more focused agenda.
To pursue this ecological metaphor, you seem to suggest a three-level structure: SWIFT itself, SWIFT and its customers, and the financial community as a whole. While the control that SWIFT can exercise decreases rapidly as one moves from one level to the next, SWIFT nevertheless has some form of influence at all levels. Is this a fair description of the complex interdependencies you have to keep in mind?
Tjerk Veenstra: One of the main challenges we face, along with many other financial institutions, is that the present level of interdependence far exceeds what most organizations were used to. We are no longer only a networked infrastructure that serves individual operations. We are an integral part of a highly interdependent web. Therefore, in order to have the capacity to act with all the other players in a crisis, we need to understand how we can overcome the silos that exist whether geographically, or from industry to industry – when the same money is involved in both – e.g. payments vs. securities, or between systems as well as between organizations. A good understanding of the complex way in which our contribution creates value certainly helps us understand what we need to do in order to take initiatives and contribute to build a more resilient environment. It also helps us to understand what we must do when crises strike – and strike they do, occasionally.
In my view, a very telling analogy of that increased need for coordination can be found in the history of the European air-traffic control system. There was a time when it looked so natural that every European nation should control its own “piece of sky” with a mandate that applied up to, but not beyond, national borders. Yet, a principle set up at a time when there were still horse-drawn carriages around is no longer appropriate for the type and the number of movements that air-traffic controller now have to deal with. The present level of interconnection and interdependence increases the need for coordination and for integrated processes organized around the structure of the traffic and not borders that it happens to fly over. This need for an integrated, "straight-through" as we say, approach is true, both for day-to-day operations and unusual events. The same applies to the SWIFT network.
You say that this holistic approach is just as beneficial for day-to-day operations as in case of a crisis. Yet does it not take a crisis to make people – and companies – aware of the extent to which the nature of their activity has changed?
Tjerk Veenstra: In normal day-to-day situations, the system works and people know what to do. In unstable situations, however, we start to realize that we are much more dependent on each other than we may consciously admit. Take the border between the Netherlands and Belgium. The emergency services on each side have their own procedures, but if a major event happens at the border – and it already has happened – all of a sudden it appears that people don’t know what to do or whom to talk to. It is the same thing in our field. Do we really know what to do in unstable conditions? Do we know whom to call? Are we aware that decisions we are taking in our organization will have consequences on others, and have we tested these decisions? These are among the questions we want to discuss in the Resilience Advisory Council we have just created.
Traveling back through the "layers", the more generic the perspective becomes, the less realization there is of what needs to be done. Take the sophisticated cars we drive at high speed on our modern roads as another analogy: do we realize the level of interdependence that road-safety control is all about? The networks are well in place but the further away one moves from the tangible, the less one is aware of the interdependency and of the layers of complexity on which one mission really depends. Who knows how these interdependencies are constructed?
Are these new “unthinkable” threats bringing to light new dimensions in the value-creation process that SWIFT did not have to address until now?
Tjerk Veenstra: Well, SWIFT is a network, and a network has critical nodes. We must make sure that we are protected against attempts to attack multiple critical nodes. It is not unlike protecting an electrical grid. We have to strive for a level of resilience and redundancy resembling the one displayed by a tree leaf: there can be holes in it, but the leaf does not die. An enhanced vision of "service continuity" is definitely a longer-term guiding objective as it has major implications for the value-creation process that our customers are engaged in. In the meantime, we realize that we have not yet reached that level of self-healing capacity. We are, therefore, considering what we should do in different types of crises before we reach that level of global resilience. This is also part of what we need to understand from our customers’ perspective.
Is that the key reason behind the creation of the Resilience Advisory Council?
Tjerk Veenstra: The Council is there to assist SWIFT in understanding the need and the expectations of its customers and in identifying how to build a more resilient environment. The Council will bring the customers’ perspectives to light, whether these are financial institutions, market infrastructures from the payment as well as the securities sides, central banks…
The members of the Council we have identified represent SWIFT’s main customers – market infrastructures, central banks, and industry associations – and contribute business-continuity expertise at a very senior level within their institution. The first meeting will take place in Geneva at Sibos 2002. The Council will then make recommendations to the SWIFT Board, and there is much urgency on that. It is about addressing critical issues sooner rather than later.
What is your own personal role in this process? And with what perspective are you coming to this task?
Tjerk Veenstra: This effort by SWIFT to take its resilience to a higher level, as well as this very important dialogue with customers and the industry on an on-going basis, require dedicated senior management oversight. Hence the creation of my position as Director, Corporate Resilience.
I joined SWIFT after having worked in the aviation industry and my experience was in air-traffic control and flight operation. It gave me a professional foundation in managing operational processes, often highly time-critical ones. It also exposed me to crisis-management situations. Anyone who specializes on preventing – or dealing with – crisis situations is bound to have an interest in several different sectors because crises do not neatly follow the dividing lines we use to represent the world. Expecting the unexpected, I guess, requires looking beyond the usual business definitions…
Is this SWIFT initiative part of a broader pattern? For instance, do you think that recent events will foster the creation of positions of Chief Resilience Officer in many financial institutions?
Tjerk Veenstra: In any way the task is coined, the financial industry is very familiar with business continuity. So what the recent event will imply is best described as taking business-continuity imperative professionalism to a higher level.
Other the past years, you saw CFOs, CIOs… but also the emergence of "Chief Customer Officers", namely people having end-to-end responsibility for customer processes. The Chief Resilience Officer, if this is how you want to refer to him or her, will have end-to-end responsibility for business-continuity processes across the whole operation. By contrast with the previous approach, which focused on specific applications, the new challenge is to adopt an end-to-end perspective, and this requires end-to-end corporate responsibility and experience. This might well lead to dedicated senior and executive positions but, again, the essential development is yet another quantum leap in the professionalism we bring to bear on business continuity.
Looking beyond what SWIFT is doing internally and with its customers, what type of interaction do you expect will develop around this enhanced agenda for resilience?
Tjerk Veenstra: I can imagine that we'll see a series of actions very similar to those the public and private sectors worked on together for Y2K. This is not happening yet, but some of the working relationships established for Y2K and some of the models adopted then may be reactivated. At that time, both the Y2K Council –which represented the public sector– and "Global 2000" –which represented the private sector– turned out to be very effective. The uniqueness of this exercise was to cut across all types of financial operations across the globe. I expect that such cross-organization resilience programs will have to happen, but clearly, there is still a lot of work to be done.
On 9.11 2001, the downfall of telecom infrastructures took people by surprise. How is it possible to integrate critical infrastructure providers into this type of "resilience dialogue" and, anyway, how do you conceptualize the articulation between the world of telecom and payment infrastructures?
Tjerk Veenstra: Well, in a clear spirit of complex interdependence, telecom networks are at the same time, the basic "layer” of cables we use and also at the "higher" layer of interdependent networks. They are both "below us" keeping our value-chain together, and "above", linking us to a web of other activities.
If a nation addresses questions of resilience and stability for one of its major financial centers, then it wants to engage infrastructures operators in a dialogue on how to achieve stability. As an example, this is clearly what is happening in the UK where we have an on-going dialogue with the key UK financial authorities, namely the Bank of England, HM Treasury and the Financial Services Authority. We meet there not so much as "SWIFT and customers" but as a critical infrastructure in a country where we contribute to the stability of infrastructures in general.
As a think-tank, we'd like to conclude with a question about the conceptual challenges that resilience implies. With all these links and working groups now in place, and with your rich experience of these issues, is there an analytical or conceptual issue that you feel needs to be further explored?
Tjerk Veenstra: A very fundamental question we are confronted with is the identification and quantification of operational risk in the new sense. Is it a popular press issue only, or is it something that can be analyzed and quantified in ways leading companies to specific actions? This area is still uncharted in many ways, although Basle II, an important subject in this book, brings in new elements of expertise. On this aspect as on the others we debated, the underlying challenge is to move even higher levels of professionalism. And to do so now.
Conducted by Albert Bressand and Catherine Distler in La Hulpe
