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APRA’s upcoming operational risk management regulation will have a significant impact on financial institutions. Because it takes less than a year to fulfill requirements, writes Dan Cooke, Asia Pacific Business Director at Roboyo.
The concept of operational resilience, or understanding and managing operational risk, is not new to those in the financial services industry. But the industry is fast approaching the injunction tipping point. Like many other regulators around the world, the Australian Prudential Regulation Authority (APRA) has mandated the industry to strengthen operational risk management and improve business continuity planning.
Having recently released its Operational Risk Management Prudential Guide CPG 230 (CPG 230) to assist in the implementation of the Operational Risk Management Prudential Standard CPS 230 (CPS 230), APRA is once again ringing in the new standard’s adoption day. effect: 1 July 2025. Banks, insurance companies and pension administrators now have less than twelve months to comply.
The evolving environment for Australia’s financial services sector requires a focus on the resilience of critical operations and improving third party risk management. Open banking increases the need for organizations to have a sufficiently prepared, funded and sustainable risk management capability.
As financial services businesses consider their readiness for CPS 230 by 2025, they need to consider the role of compliance and how it is managed in the organization over the long term.
Resetting compliance
Compliance is often seen as an existential threat, as a cost center of the organization. It is a feature that consumes margin but does not offer a connected top-up line.
The traditional approach to operationalizing compliance also tends to be siled and limited, with a good deal of myopia. A short-term view of compliance is maintained when key performance indicators (KPIs) are not linked to key risk indicators (KRIs). Organizations neglect to consider long-term opportunity costs and potential ROI for inclusion in strategy and budget decisions.
When done right, compliance management can become a strategic advantage that differentiates an organization from their competitors by strengthening their reputation as a responsible and trusted provider.
Another obstacle to inducing meaningful operational resilience is the issue of optimism bias. The belief that “it will never happen to us” means that compliance decisions are made based on the minimum amount of expenditure to maintain compliance on the surface.
The obligations associated with a standard such as CPS 230 are highly interconnected across people, processes and technologies. As such, compliance has a much more important role, serving as an advisor to organizational leaders and providing continuous strategic impact across the organization.
Organizations should not only look at operational resilience from a compliance perspective, but rather from a strategic ROI perspective as they are challenged to maintain revenue streams and grow both margin and footprint in an ever-changing environment.
Regulation meets innovation
Legal and compliance tasks remain slow, largely manual and complicated, despite improvements in digital transformation in many financial services organizations. The growing volume of compliance requirements today underscores the need for organizations to streamline processes and maximize efficiency and productivity in their compliance efforts.
The creation of digital twins supports continuous process excellence in a secure environment that allows iterations to be tested before being rolled out to the wider business. A digital twin is a virtual replica of an organization’s most important operations that maps the many interconnected business processes behind its day-to-day operations.
Most compliance solutions that pretend to be modern don’t use digital twins or real-time access. Instead, they rely on static data sets with regulation analyzed at a point in time that is not tailored to specific operational needs. Modern compliance solutions use a combination of low-code technologies powered by artificial intelligence, process digital twins, process excellence and real-time reporting. These tools not only create resilience to regulatory measures but also ensure a sustainable and profitable business model.
For financial services organizations, this innovative solution integrates regulatory requirements into automated processes, enabling real-time data and insights, rapid identification of systems affected by regulatory changes, and transparent reporting through configurable dashboards. This integration improves risk management, reduces costs and accelerates innovation and decision-making. More importantly, it helps executives anticipate and address any impact on the organization before it becomes a problem.
Acceptance of risk
The regulatory environment in Australia is constantly evolving and CPS 230 is just one piece of the puzzle. The right technology and automation can help financial services organizations adapt flexibly as change occurs.
It is important to remember that risk is not a four letter word; it can be mastered and is often critical to success. At the same time, automation and digitization do not mean a “computer say no” approach. Such thinking is counterproductive, reduces agility, and can even increase risk while stifling revenue growth and innovation.
While any technological advancement is positive, the isolated implementation of AI, automation and process control fails to account for the highly integrated and interconnected complexities of operationalizing compliance. These tools alone do not address scalability or deliver benefits across the organization.
Only by embracing risk as a strategic imperative and leveraging technology to support compliance can finance leaders drive true operational and organizational resilience.
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