The Australian Prudential Regulation Authority (APRA) published a letter that sets out initial risk management expectations for all regulated entities that engage in activities associated with crypto-assets, along with the related policy roadmap for the period ahead.
APRA expects all regulated entities to adopt a prudent approach while undertaking activities associated with crypto-assets and ensure that any risks are well-understood and well-managed before launching material new initiatives. The key expectations from all regulated entities are to:
- Conduct appropriate due diligence and comprehensive risk assessment before engaging in activities associated with crypto-assets and ensure to have actions in place to mitigate any associated risks including credit risk, investment risk, operational risk, cyber risk, anti-money laundering/combating the financing of terrorism (AML/CFT) and technology risks.
- Consider the principles and requirements of Prudential Standard CPS 231 Outsourcing or Prudential Standard SPS 231 Outsourcing when relying on a third party in conducting activities involving crypto-assets.
- Apply robust risk management controls, with clear accountabilities and relevant reporting to the Board on the key risks associated with new ventures.
- Consider potential prudential risks formulated by APRA while undertaking crypto-asset activities.
- Comply with all conduct and disclosure regulation administered by Australian Securities and Investments Commission (ASIC), including risk management, consideration of distribution practices, disclosure, and product design.
- Consult with APRA and ASIC on prudential, disclosure, or conduct requirements and expectations when undertaking activities associated with crypto-assets.
Policy Roadmap—In addition, APRA plans to develop long-term prudential framework for crypto-assets and related activities in consultation with other international regulators, to ensure consistency in approach. In the period ahead, APRA plans to:
- Consult on requirements for the prudential treatment of crypto-asset exposures in Australia for authorized deposit-taking institutions, following the conclusion of the Basel Committee’s current consultation. The consultation is expected to be undertaken in 2023.
- Progress new and revised requirements for operational risk management, covering control effectiveness, business continuity, and service provider management. The draft prudential standard will be released for consultation by mid-2022.
- Develop regulatory framework for Stored-value Facilities (SVFs) and consult on prudential requirements for large SVFs by 2023.
Keywords: Asia Pacific, Australia, Banking, Crypto-Assets, Operational Risk, Credit Risk, Cyber Risk, AML CFT, CPS 231, SPS 231, Disclosures, Business Continuity, ASIC, Stablecoins, Outsourcing Arrangements, APRA
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