APRA released an information paper analyzing the self-assessments performed by 36 of the country’s largest banks, insurers, and superannuation licensees in response to the final report on the Prudential Inquiry into the Commonwealth Bank of Australia (CBA). The Prudential Inquiry report on CBA was published in May 2018. The paper discusses the outcomes of the self-assessment process, key findings and common themes, and the solutions being implemented by institutions. The paper also outlines the next phase of APRA workstreams to strengthen prudential expectations and intensify supervision of governance, accountability, and culture.
The Prudential Inquiry was launched following a series of significant operational and governance shortcomings that damaged the reputation of CBA. The report found that continued financial success of CBA had dulled the institution’s senses, especially with regard to the management of non-financial risks. APRA wrote to the institutions’ boards last June asking them to gauge whether the weaknesses uncovered by the CBA Prudential Inquiry also existed in their own companies. In addition, APRA wrote to the boards of 36 authorized deposit-taking institutions, insurers, and superannuation licensees asking them to conduct a self-assessment against the findings and provide that assessment to APRA. APRA has since examined these self-assessments to assess their quality, identify common themes, and, where necessary, challenge institutions’ findings. Overall, it is clear that the weaknesses identified in the final report of the Prudential Inquiry are not unique to CBA. A number of common themes have emerged from the self-assessments, including:
- Non-financial risk management requires improvement
- Accountabilities are not always clear, cascaded, and effectively enforced
- Acknowledged weaknesses are well-known and some have been long-standing
- Risk culture is not well-understood and, therefore, may not be reinforcing the desired behaviors
The paper highlights that significant uplift is required across industries to bring governance and the management of non-financial risks to an appropriate standard. This includes embedding robust frameworks that incentivize delivery of sound outcomes, proactive management of issues, and consistent application of rewards and consequences. Over the next 12 months, APRA will strengthen prudential expectations and increase supervisory intensity for governance, accountability, and culture for all regulated institutions.
APRA is meeting with participating institutions and, as a next step, will be writing to the boards of each of the 36 institutions to provide feedback on their self-assessments and outline the intended targeted supervisory engagement by APRA. The nature of this engagement will depend on the quality and findings of the self-assessment and the risk profile of the institution. For some institutions, the issues identified in the self-assessment are material and the changes required to address them are significant. APRA is, therefore, considering applying an additional operational risk capital requirement to reflect the higher risk profile of these institutions. Many institutions that conducted a self-assessment have developed plans to address the findings. APRA expects all regulated institutions to identify and address points of weakness and continues to encourage institutions that have not yet completed a thorough self-assessment to do so. Institutions should consider the observations in this information paper when designing and implementing steps to enhance risk governance.
Keywords: Asia Pacific, Australia, Banking, Insurance, Superannuation, Governance, Self-Assessment, Prudential Inquiry, Accountability, Operational Risk, APRA
Previous ArticlePRA to Amend Supervisory Statement on Counterparty Credit Risk
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.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.
The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.