In a letter to industry on Tuesday, the regulator advised it would begin using its new Supervision Risk and Intensity (SRI) model from October, with the new system expected to be fully implemented by June next year.
The SRI model will replace the Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS), that had been used since 2002.
The new framework will be used to assess the systemic significance of entities and the level of risk each one faces, which will then guide the intensity of APRA’s supervisory response.
Organisations will be placed on one of four tiers based on their potential systemic impact, factoring in size, interconnectedness, how easily they can be substituted by other entities, complexity, critical functions and resolvability.
Unlike its predecessors, the SRI model has a greater focus on non-financial risks and it supposedly caters for industry nuances.
APRA chair Wayne Byres said over recent years, the “level and nature of prudential risks” had evolved.
“APRA has needed, for example, to increase its scrutiny of governance, culture, remuneration and accountability, and to address new and emerging risks such as cyber-security,” Mr Byres said.
“The new SRI model is more contemporary and sophisticated than its predecessor. The model includes a degree of tailoring to each individual sector, and its greater flexibility will help APRA respond to changes in the risk environment, such as those posed by the current pandemic.”
The regulator has released an SRI model guide in an effort to assist the industry to prepare for the transition. It has also published a revised supervision philosophy.
