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APRA releases consultation on harmonised and enhanced risk management requirements

Thursday 9 May 2013



The Australian Prudential Regulation Authority (APRA) has today released for consultation a package that would ensure the consistent application of its risk management requirements across its regulated industries and that reflects its heightened expectations in this area.

The package proposes harmonised risk management requirements for authorised deposit-taking institutions (ADIs), general insurers, life insurers, single industry groups (Level 2 groups) and conglomerate groups (Level 3 groups). It includes a discussion paper, a draft new cross-industry risk management prudential standard and an updated cross-industry prudential standard on governance.

The proposed cross-industry Prudential Standard CPS 220 Risk Management (CPS 220) consolidates existing risk management standards for insurers and includes some risk management requirements for ADIs that are currently spread across a number of ADI prudential standards. The new standard will not apply in superannuation; Registrable Superannuation Entity (RSE) licensees must comply with the superannuation-specific risk management standard that comes into effect on 1 July 2013.

To reflect APRA’s heightened expectations on risk management, APRA is also proposing enhancements to the existing requirements in Prudential Standard CPS 510 Governance. In particular, it is proposing that Boards of regulated institutions establish a Board Risk Committee, to which a designated Chief Risk Officer would be accountable.

APRA Chairman Dr John Laker said the harmonisation and enhancement of APRA’s risk management requirements were consistent with the improvements that have been made in risk management practices, locally and globally, in response to lessons learned in the global financial crisis.

‘Our aim is to reinforce good governance and risk management, and to ensure boards and supervisors direct their focus to where it is most appropriate — on desirable values and behaviours implemented by strong management teams,’ Dr Laker said.

Submissions on the proposed cross-industry risk management prudential standard (CPS 220) and the updated governance prudential standard (CPS 510) are due by 5 July 2013.

Over the course of 2013, APRA will consult on a set of related prudential practice guides and consequential amendments to other prudential standards that give effect to these requirements. The proposals are expected to take effect from 1 January 2014.

The discussion paper and draft prudential standards can be found on the APRA website.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.