What are Impact Tolerances?
An impact tolerance is the maximum tolerable level of disruption to an important business service and represents the point beyond which the harm caused by a service disruption becomes intolerable. The regulators’ definitions of important business services refer to an intolerable level of harm for consumers, risks to the Firm’s safety and soundness and to UK financial stability. In this context, consumers are regarded as those end-users that are the direct consumers of the firm’s services or in other ways dependent upon them. This includes both retail and wholesale market participants.
The threshold to be met is set quite high. Firms should start by identifying all their business services and then shortlist the ones with a severe impact based on these definitions. Once firms have identified their important business services, they must consider how disruption to these services can impact the regulators’ objectives. This goes beyond the firm’s own business objectives.
Intolerable harm has to be much more severe than harm or inconvenience. The FCA views intolerable harm as an outcome which consumers cannot easily recover from, for instance where, post disruption, a firm is unable to put a client back into a correct financial position, or where there have been serious non-financial impacts that cannot be effectively remedied.
Impact tolerances do not factor in the frequency at which operational disruptions are likely to occur. Rather, they focus on setting the limit of the impact the firm can tolerate from a single disruption.
Firms should set these impact tolerances on the assumption that disruption will occur, and they should not consider the cause or probability of disruption.
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