Posted: 19 May. 2020 10 min. read

Establishing a Robust Framework

A robust controlled framework is more important now than ever in present times. The world is likely to be a different place post COVID-19 pandemic, and there will undoubtedly be a number of implications for the global economy and businesses for the future.

To explore this, Deloitte Private High Growth held a webinar for Founders and CxOs of fast growing businesses to discuss operational resilience amongst firms in the high growth sector. I was delighted to join as a speaker and share a few key insights around establishing a robust framework.

Global economy

We’re obviously seeing huge impacts on certain sectors of the economy, whether that be leisure, tourism, retail etcetera. The public sector has taken on a huge role in present times and by the time we come out of this, debt to GDP ratios will be significantly high, not just in the UK, but in many countries around the world. Central banks have also played a huge role. Interest rates are at a record low in many economies, and the estimation is that they will continue to remain that way for some time. Curbs in immigration, global travel and tourism may also continue for the near future.

However, there are some common implications that we can assume. The aforementioned low interest rate environment enduring and the increased cost of impairment, which we’ve already started seeing in the financial services industry, particularly for the larger banks. We are likely to see a short-term credit spike but long-term deleveraging overall in the industry, and volatility coming through from customers, governments, and regulators. This is an interesting phenomenon compared to the 2008 financial crisis, during which the opposite was true. All of this results in reduced margins and reduced profitability, and so, some businesses might be acquisitive and growth-oriented, and looking to utilise their robust position. For all businesses however, the key focus remains on customers. Individual companies must retain a relentless focus on customers, spikes in demand, new economics and changes in consumer behaviours. What the eventual recovery looks like will be a huge debating point over the coming weeks and months.

How do we convert this into real impacts? Customers, operations, balance sheets

Customers
Whether they are individuals like you and me, or businesses who are more SME focused and businesses themselves.

Balance sheets
From a financial services slant, there are significant challenges for businesses around impairment as the real economy starts feeling the economic impact of what we are seeing around us. For individual businesses and particularly for financial services, strengthening their balance sheet positions will be quite critical.

Operations
Operations will play a strong part in making sure that businesses continue to deliver in every phase of the pandemic. When we look at the cost-saving initiatives that a lot of companies are already undertaking – and are increasingly going to take – the different ways in which we have to implement the activities of each phase might also change. There has been exceptionally high usage of technology in businesses which was previously not the case, or might have been the case but wasn’t fully utilised. Looking at cyber risks and other types of security risk that may not have been as prevalent before will be key now.

When we talk about having a robust framework and operational resilience (particularly in financial services), there naturally is a regulatory slant. Therefore, what it really comes down to is looking at the operational and financial aspects of our day-to-day operations and making sure that businesses are able to make decisions on a day in day out basis in this ever-changing environment. Perhaps the best way to consider these things is exactly how you would in normal times; it’s about people, process, controls and technology.

People
We are in a distributed workforce environment, with potentially limited offshore and outsourced activity available; although in some cases that might be increased outsource activity as well. It’s important to assess the structure of your operating model, and continue to monitor and effectively review the key risks and key controls of the operating environment as it is transformed.

The wellbeing and safety of your workforce in this distributed environment is of course a number one priority.  Therefore, the dependency on key personnel, and the segregation of key teams and ‘back up’ teams, is essential to ensure continuity of your business. This is particularly important when it comes to operational and financial reporting. With people doing scenario analysis on a daily basis, having that information in an agile way is very important.

Processes and controls
Before this pandemic, going into this cycle, particularly for high-growth businesses and for FinTechs, backend controls were generally always trying to catch up. This is because growth was very fast on the frontend. However, in industries that are regulated, this is generally not a good place to be, because you want to create capacity and then grow. Currently, many FinTechs have found the opposite to be true. This throws up some challenges with potentially worse consequences.

Therefore, under these stressed times, it’s even more important to make sure that you have dependent controls in place, particularly where remote working is taking place. These are high-end technology controls, cyber controls etcetera. Service organisations have very robust oversight and management of these controls, now more so than ever.

Further resources:

  • Access the webinar recording in full
  • Register for our monthly High Growth webinar series here
  • Explore Deloitte’s framework on resilient leadership, which provides practical and specific steps that can help blunt the crisis’s impact—and enable organisations to emerge stronger

Key contact

Atif  Yusuf

Atif  Yusuf

Partner

Atif is a Partner in our Banking & Capital Markets audit practice based in London. He has been with Deloitte for 18 years and has worked in the UK and Middle East. Atif performs both audit and advisory roles. Atif has led audits of large retail banks, broker dealer businesses and mid-tier banks in the UK. Atif is a leader within our Prudential Regulation business, and leads on large scale finance transformation and change projects. In his Advisory work, he is focused on cost reduction, finance transformation and regulatory change. Atif has led finance and regulatory change programmes at various banks.