A new model for assessing the risks likely to be faced by banks, insurers and superannuation companies has been developed by the Australian Prudential Regulation Authority (APRA).
In a letter to the industry, Chair of APRA, Wayne Byres (pictured) said the rollout of the new Supervision Risk and Intensity (SRI) Model would begin immediately.
Mr Byres said the new system was expected to be fully implemented by June 2021.
“The SRI Model will replace the Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS) — systems that APRA has used since 2002,” Mr Byres said.
“APRA will use the SRI Model to assess the systemic significance of APRA-regulated entities, and the level of risk each entity faces. These assessments will then guide the nature and intensity of APRA’s supervisory response.”
He said the PAIRS and SOARS framework had served the APRA well for close to two decades, but over recent years the level and nature of prudential risks had evolved.
“APRA has needed, for example, to increase its scrutiny of governance, culture, remuneration and accountability, and address new and emerging risks such as cyber-security,” Mr Byres said.
“The new SRI Model is more contemporary and sophisticated than its predecessor. It includes a degree of tailoring to each individual sector, and its greater flexibility will help APRA respond to changes in the risk environment, such as those posed by the current pandemic.”
He said that in order for industry to prepare for the transition, APRA had released an SRI Model Guide with more detail on its design characteristics.
“APRA has also published its revised supervision philosophy, which sets out the supervisory approach used by the regulator in pursuing its mandate,” Mr Byres said.
“APRA will shortly undertake a series of structured engagements on the new SRI Model to help industry understand how it works, and what impact it may have on the level and intensity of supervision APRA applies.”
Copies of Mr Byres’ letter, SRI Model Guide and APRA’s revised supervision philosophy can be accessed on the APRA website at this PS News link.
