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

    Featured Experts
    Related Articles
    News

    BIS Paper Studies Impact of Fintech Lending on Small Businesses in US

    The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.

    September 26, 2022 WebPage Regulatory News
    News

    UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks

    The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).

    September 26, 2022 WebPage Regulatory News
    News

    EBA Launches EU-Wide Transparency Exercise in 2022

    The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.

    September 23, 2022 WebPage Regulatory News
    News

    SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks

    The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."

    September 22, 2022 WebPage Regulatory News
    News

    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.

    September 21, 2022 WebPage Regulatory News
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8521