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Pandemic Planning CIA Conference June 29-30

Pandemic Planning CIA Conference June 29-30. Judy Cameron Director Legislation & Policy Initiatives – OSFI 613 – 990-7337. Agenda. Background on regulators focus on BCP Why pandemic concerns Canadian authorities International responses to pandemic threat What has OSFI done

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Pandemic Planning CIA Conference June 29-30

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  1. Pandemic PlanningCIA Conference June 29-30 Judy CameronDirector Legislation & Policy Initiatives – OSFI 613 – 990-7337

  2. Agenda • Background on regulators focus on BCP • Why pandemic concerns Canadian authorities • International responses to pandemic threat • What has OSFI done • What does OSFI look at? • Next steps

  3. Background • Heightened focus on BCP post Y2K and 9-11 • Some regulators issued specific guidance • Need for international collaboration: • Importance of global financial sector • Increasing inter-dependencies within financial system • Various international initiatives • Protocols for cross-border crisis communications • Basel principles expect banks to have contingency and business continuity plans. • Joint Forum high level principles on BCP

  4. BackgroundPrinciples for BCP • Joint Forum principles focus on Business Continuity Management (BCM) • Effective BCM includes • Business impact analysis to identify critical services/activities • Recovery strategy – objectives for recovering critical services • Business continuity plans to implement recovery strategy • Relevant for all financial sector participants and authorities Global principles for financial sector • Common base of resilience across national boundaries

  5. Background Principles for BCP Joint Forum Principles (December 2005) • Boards are responsible for effective BCM • Organisations should explicitly consider & plan for major operational disruptions • Recovery objectives should reflect FIs’ risk to the operation of the financial system. • BCPs should address range of internal & external communication issues • Communication protocols should address cross-border communication • Business continuity plans should be tested to assess effectiveness • Financial authorities should assess BCMs as part of supervisory reviews

  6. Why pandemic concerns Canadian authorities • Historical pattern - pandemics every 30 to 50 years (e.g. Spanish flu - 1918, Asian flu - 1957) • Spread of H5N1 could lead to pandemic • As of June 06/06, 225 human cases with 128 deaths • Predominantly in SE Asia (also China and Middle East) • Characteristics of H5N1 similar to 1918 virus • Fatality in the 15 – 40 age range • Experts believe a flu pandemic is inevitable • Potential for significant economic consequences

  7. Why pandemic concerns Canadian Authorities • Financial services critical to Canadian economy. • Adverse impacts due to increased absenteeism, social distraught, restrictions on travel and trade, etc. • 30 – 50% absenteeism could disrupt operation of critical financial system functions (payments, clearing and settlement). • Insurance exposure due to loss of revenue and increased claims • Impact on economy leads to increased credit risk. • Temporary increase in risk aversion. Could lead to high demand for liquidity.

  8. Pandemic vs “typical” disruption • .

  9. Pandemic vs “typical” disruption • .

  10. Pandemic vs “typical” disruption • .

  11. Global Regulatory Approaches • Pandemic is a world-wide threat • Significant collaboration between regulators through JF, IMF • IMF seminars - knowledge sharing with less advanced countries • Regulators – various responses: • UK – FSA is surveying preparedness of key firms • US – regulatory agencies are monitoring FI preparedness, liaising w industry groups • HK – set out planning assumptions • Australia – may issue guidance

  12. What has OSFI Done? Financial Institution Preparedness: • August 2005: high level BCP reviews, major FRFIs • February 2006: raise awareness with industry associations • February 2006: initiate desk-top review of pandemic plans of 11 major FRFIs • April 2006: pandemic letter to all FRFIs. • Pandemic preparedness an area of increasing supervisory focus • Board/senior mgmt should: • understand possible implications of a pandemic on operations and financial condition • review the institution’s preparedness plans. • consider a pandemic scenario in financial stress tests • May/June 2006: onsite review of selected FRFIs’ plans • Ongoing: discussions with industry associations and other regulators

  13. What has OSFI Done? OSFI Preparedness: • OSFI Internal “pandemic” working committee • Planning linked to triggers: • pre-pandemic • public report of inter-human transmission • affected person in NA/Canada • affected person in OSFI cities • illness of OSFI employee or family member • 20-40% of OSFI workforce affected • Second wave • Items key to OSFI’s pandemic readiness • Governance and Decision-making Structure • Communications Strategy/Plan • HR/Employee Safety and employee concerns (safety is key!) • Maintaining Business Operations • OSFI’s Unique Role & Responsibilities

  14. What is OSFI Looking For? • OSFI has not issued guidance/set deadlines • Review of big FRFIs’ plans vs. benchmark criteria: : • Risk assessment • Planning strategies • Communications and Response plans • For lifecos – DCAT scenarios • Expects plans will vary.

  15. What is OSFI Looking For? Risk Assessment Considerations Has the FI: • Determined potential impact of pandemic on business • Conducted assessment that identified critical functions and essential employees • Assessed risks associated with critical suppliers • Considered/tested a variety of scenarios considered

  16. What is OSFI Looking For? Planning Considerations Has the FI: • Established a pandemic contingency project team • Developed business continuity plans (BCPs) that consider pandemic scenario • Included authorities, triggers, and activation procedures in BCPs • E.g. are the triggers linked to the WHO pandemic stages of

  17. What is OSFI Looking For? Communication and Response Does the FIs’ planning: • Establish command and communication structure • Implement HR / work environment procedures • Foster staff awareness • Develop communication strategy (to inform stakeholders including regulatory authorities).

  18. What is OSFI Looking For? Stress Testing Has the FI considered: • Impact of pandemic on claims experience. • In particular, impact on claims, earnings, capital • Life insurance vs. annuities • Reinsurance • By region • Scenario comparable to 1918 flu • Severity of scenario that would bring insurance company to insolvency

  19. Next steps • Increased supervisory focus. • On-site meetings with 11 largest FIs re: planning gaps • Monitoring pandemic plans based on benchmark review criteria • Continued discussions with industry associations and international regulatory agencies

  20. How to ward off Avian Flu

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