Digital Twin - Revolutionising Operational Resilience Testing
The next frontier for financial firms?
Scenario testing continues to be an integral part of financial firms’ operational resilience frameworks.
Financial institutions take various approaches to scenario testing, including live production environment testing, internal and external simulated scenario testing and even workshops and team-based drills. In 2023, simulations are the most popular approach to scenario testing in financial institutions.
In a simulation, a computer-based programme is used to assess the resilience of a financial firm in a plausible, hypothetical scenario, such as an IT infrastructure failure. However, it is increasingly clear that simulation-based scenario testing methods may not be adequate going forward.
One problem with simulations is that they are largely static and rigid, as they are unable to incorporate real-time data updates and integrations. Typically, data is input manually before the simulation is run, and as a result, simulations are limited in the extent to which they can test evolving scenarios. They also require significant human intervention that distracts from core business duties. In addition, simulation testing in financial firms is largely built on cumbersome legacy technology systems and utilises data held in silos. As a consequence, scenario tests can incorporate inconsistencies and mistakes, and accountability can be disputed.
Given greater regulatory pressure and the high number of black swan events this decade, a standardised scenario testing framework that is fit for purpose is needed if firms are to maintain compliance and safeguard against unforeseen events. Arguably, a digital twin currently provides the most effective way in which to do this.
As you’ll find out in the coming days, there’s more than meets the eye when it comes to implementing and leveraging a successful digital twin model, as we look forward to revealing how digital twin technology will revolutionise operational resilience in capital markets.