Here is the converted article in Markdown format:
APRA Finds Compliance Risk Management Lacking in Australian Financial Institutions
==============================
The Australian Prudential Regulation Authority (APRA) has recently published a report highlighting significant shortcomings in the way financial institutions manage non-financial risks, particularly in relation to compliance risk.
Shortcomings in Compliance Risk Management
Many entities lack a clear approach to managing compliance risk, have inadequate processes in place to support this effort, and often fail to establish clear accountability mechanisms. The regulator’s findings indicate that entities face challenges in developing a comprehensive view of their obligations, even when using regulatory compliance subscription services. This is exacerbated by the complexity of operating across multiple jurisdictions, which creates multiple sets of regulatory and prudential obligations.
Recommendations for Improvement
To address these issues, APRA is urging entities to adopt a hybrid approach to managing compliance risk, combining the use of subscription services with input from compliance experts. The regulator also recommends that entities work together across business units and the compliance function to maintain a detailed understanding of all end-to-end processes and plan for changes to obligations.
Additionally, APRA is emphasizing the need for entities to establish robust processes for documenting and maintaining accurate views of their product and service offerings overlaid with compliance obligations. This allows entities to identify gaps and fill them to demonstrate compliance with regulations and laws.
Accountability in Compliance Risk Management
APRA is also pushing for clearer accountability in managing compliance risk, citing instances where entities have adopted the “Three Lines of Accountability” model, which provides an effective framework for risk management. The regulator notes that while some entities are making progress in clarifying accountabilities, many still need to invest in people, processes, and systems to support compliance risk management.
Conclusion
The report concludes by emphasizing the importance of senior leadership and boards prioritizing compliance risk management, with APRA urging entities across all industries to ensure they have a defined approach, established processes, and clear accountability mechanisms in place. The regulator will continue to closely monitor entities’ management of compliance risk through its supervisory activities.
Key Takeaways
- Financial institutions need to adopt a hybrid approach to managing compliance risk, combining subscription services with expert input.
- Entities must establish robust processes for documenting and maintaining accurate views of product and service offerings overlaid with compliance obligations.
- Clear accountability is essential in managing compliance risk, with the “Three Lines of Accountability” model providing an effective framework.
- Senior leadership and boards must prioritize compliance risk management to ensure entities are adequately equipped to manage these risks.
What’s Next?
APRA will continue to closely monitor entities’ management of compliance risk through its supervisory activities. The regulator is urging financial institutions to take immediate action to address the identified shortcomings and adopt better practices in managing non-financial risks, particularly in relation to compliance risk.