NEED TO KNOW

On 8 May 2014, APRA released a letter to all CEOs of authorised deposit-taking (ADI) institutions, general insurers and life companies to clarify its intent with respect to certain specific risk management matters in relation to:

  • APRA Prudential Standard CPS 220 Risk Management (CPS 220); and
  • draft APRA Prudential Practice Guide CPG 220 Risk Management (CPG 220).

The matters being refined relate to the:

  • use of the word “ensure” in the context of a board’s risk management framework and the role played by the board;
  • three lines of defence risk management model consisting of management, a Board Risk Committee and a Board Audit Committee; and
  • inclusion of a concept of materiality for the purposes of a board’s risk management declaration.

BACKGROUND

As previously advised, on 31 January 2014, APRA released a package to harmonise and enhance risk management practices and requirements across the industry including ADIs, general and life insurers, authorised non-operating holding companies as well as Level 2 and Level 3 groups. 

The package followed proposals released by APRA in early 2013 seeking to continue its focus on good governance practices by:

  • harmonising risk management requirements through consolidation of risk management requirements that apply to ADIs, general and life insurers, authorised non-operating holding companies and Level 2 and Level 3 groups; and
  • bolstering risk management governance requirements to reflect APRA’s heightened expectations.

Written submissions on the proposed CPG 220 were due by 28 March 2014 and while APRA will release a formal response to those submissions in due course, it has released a letter in the interim to propose refinements with respect to certain matters that have been raised in many of those submissions. 

SUMMARY OF PROPOSED REFINEMENTS

In the letter, APRA proposes refinements to clarify its intent in relation to the following three areas:

Click here to view the table

TIMING AND NEXT STEPS

APRA will take into consideration any comments on the proposed refinements described above before finalising its response to the submissions on the proposed CPG 220 in due course. Any comments on the proposed refinements should be emailed to APRA by 30 May 2014.

CPS 220 and revised CPS 510 will take effect from 1 January 2015.