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APRA begins roll-out of new Supervision Risk and Intensity Model

The Australian Prudential Regulation Authority (APRA) has announced that it is commencing the roll-out of a new model for assessing the risks faced by banks, insurers and superannuation licensees.

In a letter to industry issued today, APRA advised 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.

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 APRA’s supervisory response. 

APRA Chair Wayne Byres said: “The PAIRS and SOARS framework have served APRA well for close to two decades, but over recent years the level and nature of prudential risks has evolved. APRA has needed, for example, to increase its scrutiny of governance, culture, remuneration and accountability, and address new and emerging risks such as cyber-security.

“The new SRI Model is more contemporary and sophisticated than its predecessor. The model includes a degree of tailoring to each individual sector, and its greater flexibility will help APRA respond to changes in the risk environment, such as those posed by the current pandemic,” Mr Byres said. 

To assist industry prepare for the transition, APRA has released an SRI Model Guide with more detail on its design characteristics. APRA has also published today its revised supervision philosophy, which sets out the supervisory approach used by the regulator in pursuing its mandate. APRA will shortly undertake a series of structured engagements on the new SRI Model to help industry understand how it works, and what impact it may have on the level and intensity of supervision APRA applies.  

Copies of the letter, SRI Model Guide and revised supervision philosophy are available at: Transition to APRA’s new Supervision Risk and Intensity (SRI) Model.

Additional resources:

APRA’s new Supervision Risk and Intensity Model (APRA Insight Issue 2 2019)  

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.