CPS 230 in 2024: Key Considerations for Approaching Compliance

CPS 230 stands as a cornerstone in the regulatory framework governing Australia's financial sector, representing a significant evolution in risk management and governance practices. Introduced by the Australian Prudential Regulation Authority (APRA), CPS 230 outlines expectations for regulated entities in enhancing their governance and risk management frameworks to ensure the resilience and stability of the financial system. The regulation serves as a response to the evolving risk landscape and aims to strengthen accountability, transparency, and risk management practices within financial institutions.

Background

Following the release of CPS 234 in 2019, which focused on cybersecurity resilience, CPS 230 extends the regulatory scope to encompass broader risk management and governance considerations. Financial institutions have been provided with a transition period to adapt their operations and processes to comply with the new regulation, with the deadline for implementation set for July 1st, 2025.

Non-compliance with CPS 230 carries significant penalties, including potential fines, regulatory sanctions, and reputational damage. As the deadline approaches, the regulatory focus on compliance intensifies, underscoring the imperative for organisations to prioritise readiness and adherence to CPS 230 mandates to mitigate regulatory risks and safeguard the integrity of the financial system.

As organisations are in the midst of preparing for CPS 230, several key areas of concerns have surfaced in the areas of supplier management, business continuity and risk management.

Supplier Management Challenges

The discourse around vendor management underscored the nuanced challenges in aligning service providers with CPS 230 mandates. Particularly, the difficulty in negotiating with behemoth service providers and the reticence of vendors to divulge essential information, including the intricacies of their supply chains, emerged as significant roadblocks. To circumvent these challenges, a multi-pronged strategy was proposed:

• Vendor Education: Crafting detailed guidance documents on CPS 230 to enlighten vendors about the regulatory landscape can pave the way for smoother compliance integration.
• Proactive Vendor Engagement: Initiating dialogue with vendors at the earliest stages can pre-emptively address contractual adjustments, fostering a more collaborative compliance journey.
• Inter-Departmental Collaboration: A holistic approach, involving insights from business continuity and risk sectors, can illuminate the identification of critical operations and material service providers, ensuring a more targeted compliance effort.
• Graded Vendor Oversight: Adopting a tiered scrutiny model for vendors, where higher-tier providers undergo more rigorous audits, optimises resource allocation and ensures focused compliance efforts.
  

Business Continuity Management Challenges

Challenges have arisen in pinpointing and defining critical operations with the desired granularity. Moreover, the lack of comprehensive business process mappings and existing BCM silos complicates the development of cohesive BCM strategies. To tackle these challenges, the round tables offered several forward-thinking strategies:

• Leveraging Regulatory Examples: Utilising concrete examples provided by CPS 230 and actively engaging with regulatory bodies can offer clarity in defining critical operations.
• Criticality Assessments: To determine criticality a key directional advise is to focus on operations that, if disrupted, would cause a material impact to your customers.
• Process Decomposition: Breaking down broad operations into more granular processes can facilitate a more precise definition of critical operations and the establishment of appropriate tolerance levels.
• Cross-Functional BCM Plans: Fostering collaboration across different organisational functions to develop unified and comprehensive BCM plans can significantly enhance organisational resilience.

Risk Management & Reporting Challenges

A common theme of 'change fatigue' among compliance and risk teams is surfacing, exacerbated by the constant flux of regulatory requirements. To streamline risk management and reporting processes while ensuring compliance with CPS 230, several innovative solutions were proposed:

• Leadership-Driven Accountability: Cultivating a top-down approach to risk management, where leadership exemplifies a commitment to compliance, can inspire organisation-wide adherence to regulatory standards.
• Organisational Risk Forums: Establishing forums for cross-departmental dialogue on risk can enhance risk awareness and foster a proactive compliance culture.
• Board Reporting: Designing board reports that are aligned with CPS 230 requirements, leveraging real-time data, and visual dashboards can significantly improve the effectiveness of board communications.

Broadening the Compliance Perspective: Beyond Immediate Challenges

While addressing the immediate challenges of CPS 230 compliance is crucial, discussions also emphasised the importance of a forward-looking approach. This involves continuously revisiting and reassessing compliance strategies in light of emerging trends and regulatory updates. Ensuring that compliance efforts are dynamic and adaptable is key to maintaining operational resilience in the face of evolving threats and challenges.

• Continuous Learning and Adaptation: The financial services landscape is in constant flux, with new technologies, market dynamics, and regulatory requirements emerging regularly. Organisations must foster a culture of continuous learning and adaptation to stay ahead in the compliance game.
• Leveraging Technological Innovations: Advancements in technology offer unprecedented opportunities for enhancing compliance and operational resilience. From AI-driven risk assessments to blockchain for secure and transparent vendor management, technology can be a powerful ally in the compliance journey.
• Collaborative Industry Efforts: The challenges posed by CPS 230 are not unique to any single organisation. There is immense value in industry-wide collaborations, where organisations can share insights, challenges, and best practices. Such collaborative efforts can lead to more standardised approaches to compliance, benefiting the entire industry.

Continuous Monitoring and Assessment

As the deadline approaches, regulatory authorities, including APRA, are actively engaged in monitoring and assessing the compliance efforts of financial institutions. Regular supervisory reviews, self-assessments, and industry consultations are conducted to gauge the effectiveness of implemented measures and identify areas for improvement. This ongoing dialogue between regulators and industry stakeholders is instrumental in fostering a culture of compliance and ensuring the integrity of the regulatory framework.

The Industry Has Been Warned

The recent warning issued by APRA chair John Lonsdale to the finance sector regarding cybersecurity non-compliance underscores the regulatory body's proactive stance on enforcing regulations. With the 2025 deadline for CPS 230 fast approaching, APRA's public announcements indicate a clear expectation for financial institutions to prioritise compliance.

Organisations still grappling with meeting the requirements of 2019's CPS 234 regulations should take heed, as non-compliance with CPS 230 will likely face intensified enforcement measures. Proactive organisations recognise the importance of staying ahead of regulatory mandates and should develop robust compliance plans for CPS 230 to ensure readiness and avoid potential penalties.

A Holistic Approach to CPS 230 Compliance

ReadiNow is leading the industry in preparing our clients for the upcoming APRA CPS 230 Prudential Standards. Take a proactive approach to your CPS 230 compliance journey with ReadiNow's webinars, industry roundtable sessions, thought-leadership content, and tailored solutions for CPS 230.

As experienced providers in GRC solutions, ReadiNow engages with many Australian financial institutions to tailor solutions to transition from their current operational frameworks to achieve full compliance with the CPS 230 standards, ensuring they meet regulatory requirements and best practices in the industry.

ReadiNow is the only GRC software platform with a custom-built, dedicated CPS 230 module, and the ReadiNow CPS 230 package is being leveraged by some of Australia's leading banks and financial institutions to implement proactive, centralised and automated strategy for effortless compliance and total control.

Learn more about ReadiNow’s CPS 230 package or book a demo to see the ReadiNow No-Code Digital Transformation Platform in action.