Aligning Risk Management Processes with APRA Standards | A Guide for Financial services

Financial services firms across Australia are regulated by the Australian Prudential Regulation Authority APRA – a government driven organisation whose primary role is to regulate and supervise the financial institutions in Australia to ensure the stability, safety, and fairness of the financial system.

Due to this, financial services organisations are obligated to operate in line with APRA’s key operating standards – CPS 230 for Operational Risk Management and CPS 234 for Information Security which provide key guidelines and best-practices for managing operational, vendor, and cyber risks. These mandatory standards have been put in place to protect the economy and ensure financial firms can remain operational in a crisis.   

This blog explores how firms can implement best-practice processes for operational, third-party, and cyber risk management that align with the requirements outlined in the APRA standards. We’ll also explain how GRC software offers out-of-the-box frameworks, templates, forms, and best-practice workflows to enable firms to implement risk management processes that align with APRA standards with minimal effort.

What are the requirements outlined in the APRA Standards?

APRA CPS 230 for Operational Risk Management states that firms must:

• Identify, assess and manage its operational risks, with effective internal controls, monitoring and remediation.
• Effectively manage the risks associated with service providers, with a comprehensive service provider management policy, formal agreements and robust monitoring.

APRA CPS 234 for Information Security states that firms must:

• Maintain an information security capability commensurate with the size and extent of threats to its information assets, and which enables the continued sound operation of the entity.
• Implement controls to protect its information assets commensurate with the criticality and sensitivity of those information assets and undertake systematic testing and assurance regarding the effectiveness of those controls.
• Notify APRA of material information security incidents.

So, how can firms implement fool proof processes that align with the requirements outlined in APRA CPS 230 and CPS 234? Let’s find out…

1. Operational Risk Management

To align with CPS 230 operational risk management requirements, financial firms will need to establish a robust operational risk management framework that proactively identifies, assesses, and mitigates risks affecting business operations. These can range from process failures and human errors to technology disruptions and external threats.

Firms will need to identify potential risks and build a ‘risk register’ and categorise and rate each risk and allocate ownership. Key risk indicators should be established for each risk and ‘controls’ should be implemented to keep risk levels within the organisations risk appetite. Regular risk assessments and checks should be implemented to monitor risk levels on a regular basis and escalation processes should be established to enable firms to address rising risk levels and implement remediating actions.

Regular risk reviews should be implemented to identify new risks and refine the organisations risk management strategy. Firms should also report on risk levels enabling them to prioritise mitigating the right risks to achieve their goals and strategic objectives.

How GRC software can help firms align risk management processes with CPS 230?

Firms can easily automate their operational risk management processes using GRC software to implement best-practice ERM practices that align with CPS 230 operational risk management requirements.

Firms can identify their critical risks and build a dynamic, searchable risk register within the platform. Staff simply complete online forms to log, categorise, and rate the risk, and to define key risk indicators and assign ownership. Once the risk register is established, controls are set for each individual risk to keep risk levels within the organisations risk appetite. The system enables firms to establish workflows to initiate regular control checks and testing – capturing the results via online forms.

GRC software can also automate the risk assessment and risk monitoring process. Firms can simply schedule risk assessments using workflow automation. The system sends a notification to the staff member who will complete the risk assessment, and they complete the details via an online form – with all data feeding straight into the platform. Reminders are automatically sent for outstanding assessments. If the results indicate that risk levels are high, notifications are sent to the relevant risk owner so they can document remediating actions and perform root cause analysis in the platform.

GRC platforms can further automate the risk monitoring process, by integrating with your other systems and data sources via API integrations. The relevant risk data feeds seamlessly into the platform and firms can set rules to detect high risk levels and establish workflow automation to notify the relevant staff. This eliminates manual risk monitoring and enables staff to act faster to lower the risk.

GRC tools also ensure ownership for risk. The platform integrates with your active directory and each risk and task is allocated a specific owner. Automated notifications direct staff to their own personalised dashboard where they can complete their risk related tasks and actions online. Every time staff log a risk, complete a risk assessment or control check, or take action to remediate a risk, leaders can see which team member completed the task based on the users’ login.

GRC platforms also automate risk reporting – producing risk exposure & control effectiveness reports, heat maps, bowtie analysis, and Microsoft Power BI reports at the touch of a button. This makes it easy for teams to analyse risk data and use it to drive important business decisions. Software enables the risk management program to scale and grow as the organisation expands – supporting continuous improvement efforts.

GRC software automatically aligns an organisations risk management program with CPS 230 requirements. This leaves firms with more time to dedicate to identifying and managing new risks and implementing effective controls to reduce risk, improving overall risk management efforts. Many GRC platforms enable firms to map risks to any associated, policies, regulations, incidents or strategic goals, further enhancing risk oversight and business operations.

Many GRC platforms also offer best-practice functionality to manage and resolve unexpected incidents and automate business continuity planning, further aligning processes with CPS 230 requirements and ensuring firms can recover swiftly from operational disruptions and downtime.

2. Vendor Risk Management

CPS 230 mandates that financial institutions assess and manage risks associated with third-party vendors. These risks include security vulnerabilities, regulatory non-compliance, and service disruptions that could impact business continuity and customer trust.

To align with CPS 230 requirements, firms must understand critical details about each vendor – capturing data regarding, costs, contract, key contacts, Service Level Agreements (SLAs), and Key Performance Indicators (KPIs). They must perform regular vendor risk assessments and vendor benchmarking, analysis, and research to ensure they are working with reliable, ethical providers both prior to onboarding and during the vendor relationship. Businesses should also track vendor performance against SLAs and KPIs to ensure the vendor is performing in line with contractual arrangements and any problems should be documented and addressed.

Firms should also ensure vendors have a viable business continuity plan that is regularly tested. They should also get confirmation that vendors are operating in accordance with any mandatory regulations & standards and have the appropriate certifications. Firms should formalise the vendor onboarding & offboarding process – making sure adequate due diligence is carried out and ensuring there are no unexpected clauses in the contract and that the notice period is adhered to.

How can GRC software help firms align vendor risk management with CPS 230?

GRC software can fully automate the vendor risk management process. The out-of-the-box templates, workflows, and forms ensure that firms can implement a best-practice vendor risk management program that meets the requirements outlined in CPS 230.

Firms can build a centralised vendor register in the platform. Staff log potential suppliers in the platform using online forms – capturing critical information around price, contractual agreements, key contacts, Service Level Agreements (SLAs), and Key Performance Indicators (KPIs).

They can also use the software to carry out vendor due diligence and fully automate the vendor risk assessment and onboarding process. Firms can set up an external vendor portal where vendors can complete their risk assessments via online forms with all data feeding into the platform. Assessments should include key questions about business continuity practices, adherence to regulations, standards & certifications, incident response plans, operational contingency plans, and cyber security practices. Firms can decide how often they want to carry out vendor risk assessments and schedule them in the system and automated workflows send email notifications to vendors asking them to complete the form in the portal with all data captured in the platform.

A vendor risk platform can also enable firms to monitor supplier performance against SLAs and KPIs and flag problems. The system can integrate with other internal systems and spreadsheets where vendor performance statistics are held and pull the data into the platform and attach it to the vendors profile facilitating ongoing performance monitoring. Rules can be set to notify staff if a vendor is not meeting SLAs and KPIs so the issue can be addressed. Staff can also use the platform to log, escalate and resolve vendor incidents and perform root cause analysis to ensure vendor performance remains at the optimum level.

Another key feature in vendor risk management platforms is their ability to integrate with vendor risk intelligence providers. This enables firms to pull in critical data, benchmarking, and analysis for each supplier relating to financial stability, fines, prosecutions, performance reviews, ethical standpoint, and data breaches straight into the platform. Firms will receive notifications if their supplier hits the headlines enabling them to address the risk immediately with the provider and seek alternative vendors if necessary.

Centralising vendor risk data in one platform creates a holistic view of vendor risk exposure enabling companies to identify potential risks that could impact their organisation and take steps to mitigate them. It also supports firms to automate key processes around vendor risk assessments, performance monitoring, on-boarding & offboarding, and the collection of vendor risk intelligence. Implementing vendor risk software enables firms to meet the mandatory requirements outlined in the CPS 230 guidance relating to vendor risk management and supplier relationships.  This best-practice, automated approach prioritises risk mitigation and contingency planning – supporting resilience efforts and ensures compliance with CPS 230 gudelines.

3. Cyber Risk Management

With most financial firms relying on a variety of digital systems and applications to run their organisations, managing IT, cyber risk, and technology risk is essential. It is also a mandatory requirement for APRA regulated entities under both CPS 230 and CPS 234.

With CPS 230 covering overall operational risk management (including digital operations), and CPS 234 specifically focusing on information security risk, financial firms must implement robust cybersecurity frameworks to achieve compliance with these APRA standards. Key areas to manage include cyber threats, data breaches, and system vulnerabilities that can compromise sensitive financial data.

Firms must set up a cyber risk register and carry out regular cyber risk assessments and security checks related to data integrity and IT system vulnerabilities to monitor risk levels. They must assign ownership for cyber risk and implement controls such as encryption, firewalls, multi-factor authentication, policies, processes, and training to keep cyber risk within tolerable levels. These controls should be tested and checked regularly to ensure they are effective. Firms should also align their processes with relevant regulations and data privacy guidelines like Basel III, GDPR, NIST, NIS2, SOX, ISO 27001 – depending on the organisation and its regulatory requirements and certifications.

Firms must have clear processes to capture, escalate and resolve cyber incidents and perform root cause analysis to prevent future occurrences. They must also have a clearly defined process for reporting notable security breaches to APRA within the stipulated time frames. In addition, organisations should also have best-practice business continuity & resilience programs in place to ensure digital systems remain operational at all times, and that data is protected. These plans should be updated, checked, and tested regularly against different scenarios. Businesses must carefully track and secure their cyber assets and put steps in place to ensure equipment is current and fit for purpose and that licences and security patches are up to date.

How GRC software can help align cyber risk management with CPS 234?

GRC software can support firms to create a best-practice cyber risk management framework that aligns with the requirements in both CPS 230 and CPS 234.

Businesses can use the platform to build a digital, searchable cyber risk register. Risks are prioritised, categorised, and allocated ownership, and Key Risk Indicators are defined. The software can automate the cyber risk assessment process. Automated workflows enable firms to schedule their assessments up front, and notifications are sent enabling staff to complete online cyber risk assessment forms – with all data feeding directly into the platform. These tools can also integrate with your other systems and data sources via API integrations – enabling you to monitor risk levels based on data in other systems and set rules to flag when risk levels are escalating to notify staff.

Teams can also build a library of cyber controls in the platform and map controls to the associated risk. Firms can also schedule and automate control checks and testing using the platform. Teams plan out the schedule of control checks and testing and automated workflows send out reminders and enable staff to complete the details of the check in the platform. Leadership teams can easily run reports on control status and effectiveness. Many software platforms offer out-of-the-box control frameworks for certain regulations and data privacy laws making it easy for firms to implement the relevant controls to ensure compliance.

These systems also offer best-practice incident reporting capabilities that can integrate with internal ticketing systems. The solution enables staff to log incidents via online forms and uses advanced automated workflows to triage, escalate, investigate, and resolve incidents and perform root cause analysis. Leadership teams can run reports on incident status and type to try and reduce future occurrences and incidents can easily be mapped back to the originating risks. Workflows can also be initiated to ensure that APRA are informed about high-risk cyber incidents when the criteria meets the requirements.

Many software platforms also offer cyber asset management capabilities, enabling teams to log all their cyber assets and track age, usage and licencing, ensuring equipment is always current and licences are valid, enhancing information security posture. 

Why Software is Key to APRA Compliance

Aligning risk management processes with APRA’s CPS 230 and CPS 234 standards is critical for financial institutions to ensure compliance, mitigate risks, and build operational resilience. Implementing best-practice frameworks for operational, vendor, and cyber risk management using GRC software ensures APRA standards are met while strengthening risk oversight and ensuring business continuity.

GRC software serves as a powerful enabler by automating risk management, streamlining incident response, ensuring compliance, and fortifying cybersecurity and resilience. By implementing a GRC solution, financial institutions can proactively manage all aspects of risk using best-practice frameworks, templates, workflows and forms that align with APRA’s evolving regulatory requirements.

Compliance with APRA CPS 230 and APRA CPS 234 can be greatly simplified by implementing a GRC software platform. A technology-driven approach is key to ensuring long-term resilience and compliance with APRA standards.

Contact us or request a demo to discover how a software platform could align your processes with APRA standards.