The Australian Prudential Regulation Authority’s (APRA) Prudential Standard CPS 230, focused on managing operational risk in sectors such as insurance, banking, and superannuation, is designed to enhance risk management practices.
Whilst the standard will officially take effect on July 1, 2025, organisations should be well advanced in their compliance preparations following the release of a consultation paper by APRA in July 2022.
As with most standards, ensuring CPS 230 compliance through advanced GRC (Governance, Risk, and Compliance) solutions can be quite costly. It’s no surprise that many businesses opt for a more budget-friendly approach, however, this can lead to increased risk in the long term as a combination of manual controls and technical debt becomes unsustainable. The real question, however, is: Beyond just meeting compliance, what does your company truly hope to achieve through this regulation?
An introduction to CPS 230
The Australian Prudential Regulation Authority (APRA) was established on 1 July 1998 as an independent statutory authority responsible for overseeing institutions across banking, insurance, and superannuation. Accountable to the Australian Parliament, APRA’s role is to ensure the stability and soundness of these financial institutions so the public can trust that they will fulfil their financial commitments, even under challenging conditions.
APRA’s mandate includes safeguarding the interests of depositors, policyholders, and superannuation fund members. By collaborating with key entities like the Australian Treasury, the Reserve Bank of Australia, and the Australian Securities and Investments Commission, APRA plays a crucial role in promoting financial system stability. Currently, APRA regulates 1,790 financial institutions, including banks, insurers, and superannuation funds.
While Significant Financial Institutions (SFIs) should be well advanced in their preparations for the July 2025 deadline, other APRA-regulated entities, including authorised deposit-taking institutions (ADIs), general insurers, life insurers, private health insurers, and superannuation funds, must begin planning now, as compliance will be required by July 2026.
CPS 230 is a standard introduced to ensure that APRA-regulated entities are resilient to operational risks and disruptions. Under this standard, these entities must effectively manage operational risks, maintain Critical Operations during disruptions, and address risks posed by service providers.
Overarching objectives from CPS 230
Operational risk management: Strengthening operational risk management through new requirements to address identified weaknesses in existing controls. This needs to include board oversight of all operational risks, and reporting of all operational risk incidents and near misses.
Business Continuity Management: Enhancing business continuity planning ensures that a company is well-positioned to respond effectively to significant disruptions and maintain essential operations. The first step is to identify all Critical Operations, define and document tolerance levels for the maximum level of disruption to these operations.
Service Provider Management: Enhancing third-party risk management by ensuring risks from all Material Service Providers (MSPs) are appropriately managed and all contracts are updated to comply with CPS 230 before 1st July 2026. The initial step involves identifying the MSPs that support Critical Operations. This process also presents an opportunity to realise business value beyond mere compliance.
Roadmap to compliance with DB Results
Our experts at DB Results offer a comprehensive CPS 230 Readiness Assessment that focuses on four key themes aligned to the key pillars of CPS 230:
Governance and operationalisation (including Board obligations, reporting and engagement): Ensuring that Boards are comfortable with the institution’s approach, including management roles and responsibilities, and receive sufficient reporting to understand the operational risk profile.
Business Continuity Management uplift (including identification and documentation of Critical Operations, Business Continuity Plan (BCP) tolerances, metrics and test plans): Do you have your Critical Operations identified across the business? What are the risk profiles associated with each process, and can your business ensure capability to continue through any disruption? Taking the approach of setting tolerance levels using a customer lens is critical to identification of these critical operations. DB Results will help you cast a critical view over the breadth of business processes and determine suitability of your operational resilience and BCP plans against CPS 230 requirements.
Material Service Provider (MSP) management uplift (including MSP contract uplift): CPS 230 requires APRA-regulated entities to identify and submit a register of their material service providers (MSPs) to APRA, with the initial submission due by 1 October 2025. MSPs are defined as those providers on which the organisation relies to carry out critical operations or those that expose the organisation to material operational risk. CPS 230 classifies certain service providers as ‘material service providers’ if they deliver specific service functions, which vary depending on the industry (e.g. insurance functions like claims and underwriting). Additionally, CPS 230 mandates that entities create and maintain a service provider management policy, outlining how they will identify material service providers and manage their relationships with them as well as ensure contractual service levels with material service providers are aligned to Critical Operation tolerances. This may require updated contracts with your partners. This is a critical artefact that must be approved by the Board.
Benefits beyond compliance
When undertaking identification and assessment of the critical operations and the suppliers of your business, you may consider exploring the Service Integration and Management (SIAM) framework.
In addition to supporting the key objectives of CPS230, SIAM also provides broader business benefits and increased value and service from your service provider landscape.
Are you ready for the upcoming CPS 230 obligations? Is your Board ready for additional reporting and compliance obligations? Do you have a clearly defined Service Management Provider framework to guide you through your 3rd-Party Risk Management?
DB Results has an extensive history in helping organisations with delivery of Regulatory & Compliance changes across highly regulated industries including Financial Services and Essential Services & Utilities.
Contact us today to arrange a CPS 230 Readiness Assessment.
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