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APRA chair lays out challenge for larger institutions' risk management

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The chair of APRA has delivered a speech on risk management this week.

The biggest challenge for Australia’s largest institutions regarding risk management is not about the lack of data, but how to draw together a wide array of data, according to the chair of APRA.

On Wednesday (7 September), Wayne Byres delivered a speech to a Risk Management Association of Australia event in Sydney — his last before he steps down next month — where he discussed the challenges faced by the risk management profession.

In the speech, Mr Byres said the prudential regulator has recently been examining the availability and quality of data at the “largest institutions”, including their governance, risk and compliance systems.

“What we have seen is that… the challenge is less about a lack of data, and more about how to draw together a wide array of data — often produced at a quite granular level — to ‘join the dots’ and produce information and insights that are useful for decision-makers,” he said.

“In promoting a stronger focus on data, metrics, limits and tolerances, we do not want to see executives and boards flooded with numbers. That would not be helpful. Rather, we need risk managers to use that information to provide meaningful insights.

“Doing so will aid the detection of genuine shortcomings and vulnerabilities, as well as improve the ability to take timely action to address the root cause of problems.”

Mr Byres noted APRA’s risk culture surveys given to some of the larger institutions’ employees in the last 18 months, in which over 230,000 employees across 61 insurance, superannuation and banking entities were surveyed, and attempts to provide insight on their thoughts on perceived risk behaviours and the systems put in place in their own places of work.

He said these surveys will help identify the extent to which positive changes are or are not being implemented by risk managers and where improvements can be made.

“It also provides APRA with the ability to benchmark results across institutions, facilitating peer analysis and comparison,” Mr Byres said.

“At this stage, we are one of only a few supervisory bodies worldwide that directly collect such survey data, although a number of our peers are interested in following suit.”

He concluded the speech by encouraging risk managers to continue investing in reliable data to assist with “more informed” risk management and decision making, and emphasised the need to store and manage the data well, rather than focus on simply having more of it.

“Our recent work in this area has shown a marked improvement in the discipline being brought to identifying critical data elements, mapping data lineage, and measuring ongoing enhancements in data quality,” he said.

“This is very important. But it is also essential to emphasise the linkage between data quality and the use of data to make key business and risk decisions.

“As risk managers, you are critical to providing that assurance (and highlighting when it is not the case).”

Mr Byres’ comments come only a week after APRA deputy chair, Helen Rowell, called on insurers to improve risk culture in their organisations.

Speaking at a Risk Australia conference, Ms Rowell referenced the risk culture surveys and called on insurers to step up.

“Most organisations have more work to do to better understand, assess and strengthen their risk culture. While boards and senior executives may genuinely believe that a sound risk culture is firmly in place, employees may think otherwise,” Ms Rowell said.

Neil Griffiths

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily. 

Neil is also the host of the ifa show podcast.