As part of the first edition of APRA Insight for 2021, APRA published articles on its response to climate-related financial risks and its evolving data capability. The articles discuss APRA work in these areas and inform about the upcoming publications and guidance to help institutions to manage risk data and address climate risks. In a separate development, APRA agreed to accept a court enforceable undertaking from Allianz Australia, acknowledging Allianz's commitment to finish rectifying the earlier identified issues with respect to the risk and compliance weaknesses. Nevertheless, Allianz remains subject to the additional $150 million capital requirement.
Data strategy initiatives. An article published in APRA Insight explains how APRA has begun transforming data collection from over 2,000 entities it regulates. At the heart of this evolving data capability is the APRA Connect project, which is scheduled to go live at the end of September 2021 and is expected to dramatically increase the volume of data APRA can collect. APRA Connect, which will replace D2A as the data collection tool, is a part of the data strategy that involves a shift to collecting source data, to minimize the burden on entities. APRA intends to design data collections to reflect the datasets that entities require to conduct their day-to-day business. This initiative will allow APRA to conduct more of its analysis in-house, rather than having to make a new data request each time particular information is required. To achieve its goals, APRA intends to take a different approach to its industry consultation process, which is planned to minimize friction points and design collections that mirror industry practice so the volume of data collected can be increased as efficiently as possible. Implementing this change of approach and increase in capability will require investment from both APRA and its regulated entities. APRA will implement the strategy incrementally, with new and revised data collections being undertaken using this new approach, utilizing the capabilities of APRA Connect. The full roll-out will result in a framework that delivers the needed data while minimizing required effort and compliance costs for entities. To help with the data quality and accuracy issues stemming from this substantial increase in data volumes, APRA states that it has in place a Prudential Practice Guide CPG 235 on managing data risk and continues to engage with industry to find workable solutions as issues arise.
Climate risk initiatives. As mentioned in APRA Insight, in an effort to address climate risks in the financial sector, APRA plans to move ahead with a new climate risk prudential practice guide and the commencement of a pilot program on climate vulnerability assessments in 2021. In an APRA survey, a third of the respondents considered climate change to be a material financial risk to their businesses now and a further half thought it would be in future. The survey findings also indicate that a majority of banks considered climate-related financial risks as part of their risk management frameworks while reputational damage, flooding, regulatory changes, and cyclones were nominated as the top climate-related financial risks. APRA also received feedback from many regulated entities, especially smaller ones, on the need for better guidance on how to respond to climate-related financial risks, especially as APRA has started urging entities to move from awareness to action in mitigating these risks. The planned prudential practice guide or PPG, which is expected to be released for consultation in the first half of this year and finalized before the end of 2021, is part of the APRA response to the received feedback. APRA also announced that the Climate Vulnerability Assessments will commencing with the five largest banks and will eventually be rolled out across the rest of the banking and the insurance and superannuation sectors, though the final timetable for this exercise is yet to be confirmed.
- APRA Insight
- Article on Data Strategy
- More on APRA Connect
- Article on Climate Risks
- Media Release on Allianz
Keywords: Asia Pacific, Australia, Banking, Insurance, Reporting, Climate Change Risk, Climate Vulnerability Assessments, ESG, APRA Connect, Allianz Australia Limited, Stress Testing, Data Strategy, APRA
Previous ArticlePRA Publishes Draft Version of XBRL Taxonomy for Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.