Tick Tock – How Is Your Business Tracking Towards Compliance with CPS 230?

The clock is ticking for APRA-regulated entities to align with the new Prudential Standard CPS 230, a framework designed to strengthen the operational risk management practices of financial institutions. From a regulatory perspective, compliance with CPS 230 is a requirement that must be met quickly.

With the compliance deadline of 1 July 2025 looming, the question isn’t just whether your business is compliant, but how effectively you are integrating these essential requirements into your operations.

Falling behind is not an option when the stakes involve both reputational risk and regulatory penalties.

This article delves into the intricacies of CPS 230, providing a plain English definition, a detailed overview of its key requirements, and actionable insights on where your organization should be in the compliance journey.

What is CPS 230?

CPS 230 is APRA’s comprehensive standard on operational risk management. Its primary goal is to ensure that financial institutions like banks, insurance companies, and superannuation funds can effectively manage their operational risks, maintain critical operations during disruptions, and manage risks associated with their service providers.

Key Requirements of CPS 230

1. Operational Risk Management Framework:

• Establish and maintain a comprehensive operational risk management framework.
• Ensure the framework includes processes for identifying, assessing, managing, and mitigating operational risks.

2. Business Continuity and Disaster Recovery:

• Develop and maintain business continuity and IT disaster recovery plans.
• Ensure plans are regularly tested and updated.
• Notify APRA within 24 hours of disruptions to critical operations.

3. Service Provider Risk Management:

• Identify and classify material service providers.
• Ensure service provider management policies address risks from critical and material service providers.
• Include provisions in contracts requiring notification of any reliance on sub-contractors.

4. Incident Management:

• Implement an effective incident management approach.
• Ensure incidents are escalated and reported to APRA within required time frames.
• Maintain detailed incident records and review them regularly.

5. Control Management:

• Develop and implement robust controls for managing operational risks.
• Regularly test controls to identify weaknesses.
• Establish plans to address any identified weaknesses.

6. Governance and Documentation:

• Maintain clear governance structures with defined roles and responsibilities.
• Keep comprehensive records of all risk management processes and policies.
• Ensure regular reporting to the board and senior management on operational risk matters.

Current Progress and Expectations

Regulatory changes like CPS 230 are critical to ensuring the stability and resilience of our financial system.

By now, APRA-regulated entities should be well underway with their compliance efforts, having conducted thorough assessments of their current operational risk management frameworks against CPS 230 requirements.

By mid-2024, entities should be in the first implementation phase, where they begin rolling out changes to their risk management frameworks. This includes updating business continuity plans, enhancing service provider management policies, and enhancing incident management protocols.

The second phase of implementation, extending into late 2024 and early 2025, should progress the embedding and refinement of these changes. It is essential during this period to test new processes and controls and ensure that all staff are adequately trained and aware of their roles.

Finally, by mid-2025, entities should conduct final reviews and audits to ensure full compliance with CPS 230. This stage might involve engaging external advisors to validate the changes and provide additional assurance.

Wrap-up

At this stage, entities should be in the implementation phase, addressing the most critical gaps identified in their initial assessments. Delaying further could result in rushed, less effective implementations that fail to meet APRA’s stringent requirements. Boards and executive teams must prioritise this compliance effort, considering it a key strategic objective for 2024 and 2025.

Achieving compliance with CPS 230 not only fulfills regulatory obligations but also enhances overall operational resilience, ultimately benefiting the entity’s customers and stakeholders. If compliance with CPS 230 is keeping you up at night, please reach out (contact us at info@crcg.com.au or click here to submit a request online).