Level 3 groups may need system upgrade, says APRA

The Australian Prudential Regulation Authority (APRA) has said groups that operate across multiple APRA jurisdictions will need adequate systems and processes to adhere to APRA's new supervisory regime.

Submissions on the proposal regarding supervision of conglomerate groups, which was released in March 2010, highlighted a number of groups' current systems limitations in regards to monitoring and managing aggregate risk exposures. 

APRA said it expected groups to have adequate systems in place by the proposed implementation date of 1 January 2014 and groups may need to update systems. It said monitoring and managing aggregate risk exposures aligned with the central principle that the head of the group has "a clear oversight of material risks across the group".

APRA said 'level 3 groups'  those that operate across multiple APRA-regulated industries  would also need to enhance systems to manage new guidelines on intra-group transactions and exposures.

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In both instances APRA said it might impose supervisory adjustments on level three heads it deemed were taking excessive risk exposures, or that were exposed to a significant level of intra-group transactions. 

APRA's discussion paper reviewed draft proposals regarding level three groups and outsourcing, business continuity management, governance and fit and proper conduct.

A discussion paper regarding capital adequacy, measurement of capital and risk management will be released for consultation in the first half of this year, APRA said.

It said aligning level three groups with the existing superannuation framework for cross-industry behavioural standards was an important step in managing the complexity and contagion risks and avoiding financial institution failure.