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    APRA Consults on Prudential Standard for Operational Risk

    July 28, 2022

    The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management. APRA also issued a letter and finalized the minor amendments to align and centralize the definition of a significant financial institution within the prudential framework, along with the associated prudential standards. APRA will continue to explore the scope for enhancing proportionality in the prudential framework and publish a list of significant financial institutions for all industries on its website in late 2022. In another statement, APRA announced that the neobank Volt Bank has successfully completed the process of returning deposits to its customers, post its June 29 decision to cease being a bank and hand back its authorized deposit-taking institution license to APRA.

    The proposed prudential standard CPS 230 sets out minimum standards for operational risk controls and monitoring, business continuity planning, and the management of third-party service providers. The proposed standard will replace and supersede five existing standards: CPS 231 on outsourcing, CPS 232 on business continuity management applicable to authorized deposit-taking institutions, life insurers and general insurers, the equivalent standards SPS 231 on outsourcing and SPS 232 on business continuity management for superannuation entities, and the HPS 231 on outsourcing for private health insurers. The proposed standard ensures that an APRA-regulated entity must effectively manage its operational risks, maintain its critical operations through disruptions, and manage the risks arising from service providers. The proposed standard aims to:

    • strengthen operational risk management with new requirements to address weaknesses that have been identified in the existing practices of APRA-regulated entities.
    • improve business continuity planning to ensure that regulated entities are ready to respond to severe business disruptions, and maintain critical operations such as payments, settlements, fund administration and claims processing.
    • enhance third-party risk management by extending requirements to cover all material service providers that regulated entities rely upon for critical operations or that expose them to material operational risk.

     APRA expects to release the final CPS 230 early next year, which is well before the new standard comes into force from January 01, 2024.

     

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    Keywords: Asia Pacific, Australia, Banking, Operational Risk, CPS 230, Outsourcing, Third-Party Risk, Significant Financial Institutions, Volt Bank, Regtech, Basel, Operational Resilience, APRA

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