The Australian Prudential Regulation Authority (APRA) has introduced the CPS 230 standard, adding to the global regulatory focus on operational risk and resilience. This regulation requires Australian banks, insurance companies, and other financial institutions, including foreign entities operating in Australia, to meet its requirements by July 2025. Unlike many regulations that target a specific aspect of resilience, APRA CPS 230 takes a holistic approach, integrating operational resilience, business continuity, and third-party risk management into a unified framework.
This blog post will delve into the key components of CPS 230, practical examples for compliance, and actionable steps organizations can take to meet the standard effectively.
Understanding the Four Pillars of APRA CPS 230
APRA CPS 230 is built upon four foundational pillars that guide organizations in managing operational risks and building resilience:
1. Operational Risk Management
Operational risk management encompasses the identification, assessment, and mitigation of risks related to legal, regulatory, compliance, conduct, technology, data, and change management.
Key Example: A financial institution can leverage its IT infrastructure to proactively monitor system vulnerabilities, such as outdated software or unpatched security gaps, to prevent disruptions. Establishing regular testing and monitoring of internal controls ensures these risks remain manageable.
2. Business Continuity
Organizations must identify their critical operations and define tolerance levels for potential disruptions. A business continuity plan (BCP) must outline strategies for maintaining these operations during disruptions and be updated annually.
Key Example: An insurance company could define critical operations such as claim processing and customer support, assigning tolerance levels to specify the maximum acceptable downtime. The BCP might include backup systems, remote working capabilities, and annual mock drills to simulate recovery scenarios.
3. Third-Party Risk Management
Institutions must maintain a comprehensive policy for managing risks associated with third-party service providers. This includes conducting due diligence, defining contractual obligations, and ongoing monitoring.
Key Example: A bank working with a cloud services provider could specify cybersecurity and data protection requirements in its service agreement. Regular performance reviews and audits would ensure compliance with these terms and mitigate associated risks.
4. Roles and Responsibilities
The board of directors holds ultimate accountability for overseeing operational risk management, business continuity, and third-party agreements. Clear roles and responsibilities for senior management ensure the organization maintains a robust operational risk profile.
Key Example: A financial institution might appoint a Chief Risk Officer (CRO) to lead efforts in aligning operational risk strategies with CPS 230 requirements, reporting directly to the board on compliance progress and challenges.
How to Prepare for APRA CPS 230
Complying with APRA CPS 230 requires a methodical approach. While your organization may already align with some elements of the standard, a thorough review is essential. Here’s how to get started:
1. Conduct a Gap Analysis
Evaluate your current capabilities across operational risk, business continuity, and third-party risk management programs. Identify areas where additional refinement or detail is needed.
Example: Review your operational risk policies to ensure they address emerging risks, such as cybersecurity threats, and compare them against CPS 230’s specific requirements.
2. Coordinate Across Risk Disciplines
Establish a cross-functional compliance committee to align governance, risk, and compliance (GRC) efforts with CPS 230. Designate a leader to oversee communication and progress.
Example: Organize monthly meetings with representatives from risk management, IT, and legal departments to assess compliance progress, share insights, and resolve challenges collaboratively.
3. Define Critical Business Processes
Work with executive leaders to identify your critical business processes and their associated impact tolerances. This will guide resilience planning and recovery strategies.
Example: For a bank, critical processes might include real-time payments and fraud detection. Establishing a 30-minute recovery time objective (RTO) for payment systems ensures intolerable harm to customers is avoided.
4. Update Vendor Management Policies
Collaborate with your legal team to review and, if necessary, consolidate vendor management policies. Ensure these policies account for service providers’ risks and their third-party relationships.
Example: Create a centralized vendor database that tracks contract terms, compliance performance, and risk assessments for each provider. Regularly update this database to reflect any changes.
Turning Compliance into Opportunity
While preparing for APRA CPS 230 may seem daunting, it also offers a valuable opportunity to strengthen organizational resilience. By leveraging existing systems and collaborating across departments, your organization can not only meet regulatory requirements but also enhance its ability to protect its people, customers, and reputation.
Compliance with CPS 230 ultimately positions your organization to adapt more effectively to future challenges, safeguarding operations and building trust with stakeholders. As the July 2025 deadline approaches, starting early and focusing on incremental progress will set your organization on a clear path to success.
By embracing the comprehensive framework of APRA CPS 230, organizations can turn compliance into a competitive advantage, ensuring they are better prepared for both expected and unforeseen disruptions.
Take Action Today to Strengthen Your Resilience Framework
The APRA CPS 230 deadline is fast approaching, and now is the time to ensure your organization is prepared. Start by conducting a gap analysis, aligning cross-functional teams, and updating your critical processes and vendor management policies. By taking these proactive steps, you’ll not only achieve compliance but also build a stronger, more resilient organization.
Ready to get started? Contact us today to explore how our solutions and expertise can support your journey to CPS 230 compliance and operational excellence. Let’s secure your organization’s future together.
