APRA releases harmonised standard and proposed guidance on risk management

The Australian Prudential Regulation Authority (APRA) has today released a package that harmonises and enhances its current risk management requirements.

The package includes the final cross-industry Prudential Standard CPS 220 Risk Management (CPS 220), a proposed prudential practice guide on risk management, and a response paper that addresses submissions received by APRA on the CPS 220 consultation package released in May 2013. APRA is also releasing an amended Prudential Standard CPS 510 Governance (CPS 510) to ensure that governance requirements related to risk management are aligned with those of CPS 220.

CPS 220 applies to authorised deposit-taking institutions (ADIs), general insurers, life insurers and single industry groups (Level 2 groups). The prudential standard will also apply to conglomerate groups (Level 3 groups) that APRA intends to determine by 1 January 2015. The prudential standard ensures the consistent application of APRA’s risk management requirements across its regulated industries and reflects its heightened expectations in this area.

The final 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 prudential standard comes into effect from 1 January 2015. CPS 220 will not apply in superannuation; Registrable Superannuation Entity (RSE) licensees must comply with the superannuation-specific risk management standard that came into effect on 1 July 2013.

APRA Chairman Dr John Laker said the harmonisation and enhancement of APRA’s risk management requirements will underpin improvements that have been made in risk management practices in response to lessons learned from the global financial crisis.

‘APRA is much more focussed today on the quality of an institution’s risk governance and its risk culture. Our enhanced risk management requirements will help to reinforce that focus,’ Dr Laker said.

Submissions on the proposed risk management prudential practice guide are due by 28 March 2014. APRA will finalise this prudential practice guide over the course of 2014.

CPS 220, CPS 510, the draft risk management prudential practice guide and the response paper can be found on the APRA website.