Australian banks, insurers and superannuation (pension) funds are likely to be subject to increased scrutiny as the Australian Prudential Regulation Authority (APRA) rolls out a replacement for its 15-year old supervisory framework. New areas of focus include operational resilience, cybersecurity and governance, culture, risk and accountability factors, known as GCRA.

This new model, Supervision Risk and Intensity (SRI), will replace the existing Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS). APRA Deputy Chairman Helen Rowell warned member entities that additional granularity under the new system could well cause the rankings of some institutions to change.  “The transition from PAIRS and SOARS to the SRI Model commences in October 2020 and will be completed by June 2021,” Rowell said. “The move to the SRI Model could lead to a change in the intensity of supervision that APRA applies for some entities.”

The second stage of the SRI will see institutions issued with school-style grades, from A to F, across up to 30 categories of examination. An A-grade indicates that the regulator sees minimal risk, while a grade of F will represents critical perceived risk.  Once an institution’s overall risk rating has been established, it will be awarded a “stage” (from 1 to 5). Firms with a Stage 1 designation will require routine supervision, while stage 5 indicates that APRA believes an institution no longer viable.

Against this backdrop, it is all the more important that firms adopt credible and data-driven metrics to evidence their level of GCRA risk and a capacity for proactive course-correction where needed to sustain resilience.

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