Featured Product

    APRA Announces Transition to New Supervision Risk and Intensity Model

    October 06, 2020

    In a letter to industry, APRA announced that it would begin using its new Supervision Risk and Intensity (SRI) Model from this month, with the new system expected to be fully implemented by June 2021. The SRI Model will replace the Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS) systems that APRA has used since 2002. To help the industry prepare for this transition, APRA has released an SRI Model Guide with more details on its design characteristics, along with a list of frequently asked questions (FAQs). APRA has also published its revised supervision philosophy, which sets out the supervisory approach used by the regulator in pursuing its mandate.

    The SRI model assesses the level of prudential risk within the regulated entities across a number of (revised) risk categories and helps focus APRA’s resources to entities of greater risk. The model has three core elements: tiering, risk assessment, and staging. An entity’s tier reflects the potential impact that entity failure, imprudent behavior, or operational disruptions could have on financial stability, economic activity, and the Australian community. An entity’s tiering is significant in determining the level of supervisory attention required to ensure adequate identification of risks and follow up of actions: 

    • Tier 1—Individual entities that could have a large systemic impact. 
    • Tier 2—Individual entities that could have a systemic impact.

    • Tier 3—Individual entities that are unlikely to have a systemic impact.

    • Tier 4—Individual entities that would not have a systemic impact.

    SRI, which is a more contemporary model to its predecessor, has been developed to reflect the many changes in APRA’s regulated industries, environment, risks, and supervisory approach. APRA will use the SRI Model to assess the systemic significance of APRA-regulated entities and the level of risk each entity faces. These assessments will then guide the nature and intensity of the supervisory response of APRA. Governance, culture, remuneration, and accountability (GCRA), operational resilience, and cyber-security have increased in prominence and the focus on member outcomes in superannuation has become more acute. This has driven the need to review PAIRS and SOARS and develop a more contemporary model able to better respond to the changing landscape. The new SRI Model ensures greater elevation of non-financial risks while preserving the importance of financial resilience. It also introduces recovery and resolution considerations, in addition to more systematically factoring in the impact of the external environment on the risk profile of an entity. The new model better caters to industry nuances and is aligned with the enforcement approach of APRA to ensure a timely and appropriate supervisory response to identified risks. 

    The transition from PAIRS and SOARS to the SRI Model commences in October 2020 and will be completed by June 2021. APRA will commence a series of structured engagements in November 2020 to help the industry understand how the model works and what impact it may have on the level and intensity of supervision APRA applies. The move to the SRI Model could lead to a change in the intensity of supervision that APRA applies for some entities. This is a function of the additional risk categories, coupled with the enhanced assessment of systemic importance of entities and the consequent need for a more in-depth risk assessment. It is important, therefore, for entities to ensure that they understand how the model works. The guide to the SRI Model outlines the various risk categories, the risk-rating approach, and how this translates into supervisory intensity. Entities will be advised of the outcome of their SRI rating once this new risk assessment is completed. APRA will conduct a series of webinars in November 2020 to provide an overview of the new SRI model and answer any questions.

     

    Related Links

    Keywords: Asia Pacific, Australia, Banking, Insurance, SRI Model, FAQ, Governance, Risk Takings, Systemic Risk, GCRA, APRA

    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International 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.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    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.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    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.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7311