APRA on Industry Self-Assessments into Governance and Accountability
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.
Related Links
Keywords: Asia Pacific, Australia, Banking, Insurance, Superannuation, Governance, Self-Assessment, Prudential Inquiry, Accountability, Operational Risk, APRA
Previous Article
OSFI Revises Covered Bond Limit Calculation for Deposit TakersRelated Articles
ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA Provides Opinion on Definition of Credit Institution in CRR
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA Consults on Alignment of Daily Liquidity Report for Banks
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED Releases Scenarios for Second Round of Stress Tests on Banks
FED released hypothetical scenarios for a second round of stress tests for banks.
PRA Announces Update on Supervisory Benchmarking Portfolio Exercise
PRA published updates in relation to the 2021 Supervisory Benchmarking Portfolio exercise.
FED Revises and Extends Capital Assessment and Stress Testing Reports
FED adopted a proposal to extend for three years, with revision, the capital assessments and stress testing reports (FR Y-14A/Q/M; OMB No. 7100-0341).
HKMA Updates Policy Module for Non-Centrally Cleared OTC Derivatives
HKMA revised the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
EBA Updates List of Validation Rules for Reporting by Banks
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA Responds to EC Call for Advice to Strengthen AML/CFT Framework
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS Advocates Environmental Risk Analysis for Financial Sector
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
