The Department of Financial Services' Circular No. 5 (2020) is making its rounds and requires all entities regulated by DFS to submit a COVID-19 Preparedness Plan. All regulated entities are required to submit the plan on or before Thursday, April 9, 2020.
DFS is requiring the Preparedness Plan to account for both operational and financial risks. On the operational side, the plan should include:
- Preventative measures tailored to the entity’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on consumers and vendors;
- A documented strategy addressing the impact of the outbreak in stages, so that the entity’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak;
- Assessment of all facilities, systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for longer periods or are working off-site, including the effectiveness and security of remote access;
- Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps that employees can take to reduce the likelihood of contracting COVID-19;[1]
- Assessment of the preparedness of critical third-party service providers and suppliers;
- Development of a communication plan to effectively communicate with consumers and vendors, and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;
- Testing of the plan to ensure that the policies, processes, and procedures are effective; and
- Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the entity’s own monitoring program.
On the financial risk side, the plan should include:
- Assessment of the overall impact of COVID-19 on reserve requirements, consumers’ ability to make timely premium payments, and resources required to timely process claims;
- Assessment of the credit risk of counterparties and business sectors impacted by COVID-19;
- Assessment of the credit exposure to counterparties and business sectors impacted by COVID-19 arising from investing and other financial transactions;
- Assessment of the scope and the size of admitted assets or other investments adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of such assets or investments;
- Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19; and
- Assessment of the overall impact of COVID-19 on earnings, profits, capital, and liquidity.
A full copy of Circular No. 5 (2020) can be found HERE.
If it seems that DFS is just here to put more on your plate when you need it least, DFS has also issued a temporary COVID-19 relief order which improves the ability of banks and insurers to operate remotely. A full copy of the temporary relief order can be found HERE.
