APRA CPS 230 - what do financial institutions have to change?

With just over a year until the implementation of APRA CPS 230, Australian financial institutions are facing a pressing deadline to align their operations with new regulatory requirements. Financial institutions must understand the coming changes now and take proactive steps to alter their operational processes to ensure they start on the right foot.

Key upcoming components of CPS 230 regulations

Strengthening risk management frameworks

Under CPS 230, APRA-regulated entities will be required to enhance their risk management frameworks to ensure they are robust and comprehensive.

Implement enhanced risk identification and mitigation strategies

Financial institutions must leverage technology to improve their ability to identify and mitigate risks effectively. This may involve implementing advanced risk assessment tools and analytics.

Establish clear lines of accountability and governance

CPS 230 emphasises the importance of establishing clear lines of accountability and governance within APRA-regulated entities to ensure effective oversight and decision-making processes.

Improve data management, security and third-party risk management

With the increasing importance of data in the financial industry, CPS 230 mandates improvements in data management and security practices to protect sensitive information from cyber threats and breaches.

Improve business continuity planning

The new APRA CPS 230 regulations aim to ensure financial institutions are positioned to respond to severe disruptions.

Implications of non-compliance

Non-compliance with CPS 230 can have serious consequences for financial institutions. APRA may impose penalties or sanctions on entities that fail to meet the requirements, which could lead to reputational damage and financial loss. Additionally, non-compliance may result in increased regulatory scrutiny and intervention, further disrupting business operations and eroding stakeholder trust.

Institutions must report any risks, breaches or threats to the Australian Prudential Regulation Authority within 72 hours of discovering any issue. Failure to submit to the regulator could result in action against board members and directors.

Changes required by financial institutions

Financial institutions must enhance their risk management frameworks to align with APRA CPS 230 requirements. This process involves conducting comprehensive risk assessments, implementing robust risk monitoring mechanisms, and establishing straightforward risk mitigation and escalation procedures.

Technology will be crucial in implementing enhanced risk identification and mitigation strategies. Advanced analytics, artificial intelligence, and machine learning can help financial institutions identify emerging risks and trends more effectively, enabling them to mitigate potential threats proactively.

Clear lines of accountability and governance are essential for ensuring effective risk management and decision-making within APRA-regulated entities.

At the end of the day, boards and company leaders will be held accountable for their institutions and compliance with these standards, so there must be a communication chain that leads to the top. Financial institutions must define roles and responsibilities, establish reporting structures, and implement mechanisms for oversight and accountability to comply with CPS 230 requirements.

Given the sensitive nature of financial information, data management and security are paramount in the financial industry. Financial institutions must invest in robust data management systems and cybersecurity measures to safeguard customer data, comply with regulatory requirements, and mitigate the risk of data breaches and cyberattacks.

Impact of these changes on operational processes

The changes mandated by CPS 230 will significantly impact the operational processes of financial institutions, which may require substantial investments in technology, infrastructure, and human resources to ensure compliance. Additionally, financial institutions may need to revise their policies, procedures, and internal controls to effectively adapt to the new regulatory environment.

Institutions may consider investing in technology to streamline supply chains and back-of-house processes. Implementing third-party management teams and structures focused on ensuring APRA CPS 230 compliance should also be a priority.

Change will strengthen the industry

APRA has long flagged changes, and with the implementation of APRA CPS 230 just around the corner, regulated entities must have their eye on the ball. The changes present significant challenges but can be handled with relative ease with the right tools and frameworks. Financial institutions must proactively assess their operational processes, strengthen their risk management frameworks, and enhance their compliance capabilities to meet the requirements of APRA CPS 230. By embracing these changes and investing in the necessary resources, financial institutions can comply with regulatory expectations and enhance their resilience and competitiveness in the evolving financial landscape.

For more on how automated solutions and AI can help your institution comply with new regulations, check out our APRA CPS 230 hub, or get in touch with us for a personalized demo.