Lecture 4 Flashcards
Ensure a regulatory framework that is able to adjust regulation to maintain the ______ of the financial system in a dynmaic environment.
Ensure a regulatory framework that is able to adjust regulation to maintain the cost-effectiveness of the financial system in a dynamic environment.
Provide a focused and accountable structure that facilitates ____ for ___ and ___.
Provide a focused and accountable structure that facilitates expectations for consumer protection and financial safety.
Provide ___ and_____regulation of financial conglomerates.
Provide efficient and effective regulation of financial conglomerates.
Establish ___ ____ and ___ ____ across the financial system.
Establish consistent regulation and competitive neutrality across the financial system.
Contribute effective monitoring and ___with the ____ of establishing more _____ ____ and ____ ____.
Contribute effective monitoring and review with the aim of establishing more contestable efficient and fair markets.
Basic principle of APRA’s approach to bank supervision is;
Basic principle of APRA’s approach to bank supervision is that the primary responsibility for a banks sound operations rests with the bank’s own management and board of directors.
In addition to the ____ and _____of prudential statements and guidance notes, APRA is responsible for continuous supervision of regulated institutions.
In addition to the formulation and implementation of prudential statements and guidance notes, APRA is responsible for continuous supervision of regulated institutions.
APRA has two risk assessment and response tools
Probability and Impact Rating System (PAIRS) & Supervisory Oversight and Response System (SOARS)
(PAIRS) used to;1. 2.
1.assess the probability that a regulated institution will fail 2.measure the impact (consequences) of that failure.
PAIRS based on:
- Strength of management, 2. Controls, 3. Capital Base
Supervisory Oversight and Response System (SOARS);
used to determine how supervisory concerns based on PAIRS risk assessments should be acted upon by APRA
Pairs probability:
Pairs probability rating is a measure of the likelihood that an institution will fail
PAIRS assessment involves consideration of four key factors:
Inherent Risk, Management and Control, Net Risk, Capital Support
PAIRS assessment involves consideration of four key factors:
Inherent Risk, Management and Control, Net Risk, Capital Support
Inherent risk is:
uncertainty in relation to business operations of an entity, whether statistically quantifiable or not, that has the potential to affect the financial position of an entity (primarily determined by the types of products and services offered by an entity)
Probability Rating:
Low, Lower Medium, Upper Medium, High, Extreme
Typical supervision activates for entities Normal include: 1.
•More frequent and/or more targeted prudential reviews by the supervision and risk/technical specialist teams;
Typical supervision for entities Normal include 2.:
-More frequent and more detailed collection and analysis of data and reports;
Typical supervision for entities Normal include 3.
• Communication with auditors and actuaries;
Typical supervision for entities Normal include 4-7.
• Special investigations by external expects e.g. auditors, actuaries, etc. • Requests for revised business plans; • Assessing the rectification plans put in place by the entity; • Expressing concerns to the responsible persons of the entity;
APRA intervenes actively for entities in Mandated Improvement. Typical supervision activities include:
•Requiring rectification plans and monitoring milestones; •Requiring revised business plans; •Increasing capital requirements; •Issuing directions; •Accepting enforceable undertaking •Engaging external resources •Consideration of fitness and propriety issues.
Normal: Typical supervision activates include:
•Prudential reviews •Analysis of data received on a monthly, quarterly and/or annual basis •Other supervision activities as required or at the discretion of the responsible supervision team.
For entities in Oversight:
•More frequent and/or more targeted prudential reviews •More frequent and more detailed collection and analysis of data and reports; •Communication with auditors and actuaries; •Special investigations by external expects •Requests for revised business plans •Assessing the rectification plans put in place by the entity •Expressing concerns to the responsible persons of the entity
Mandated Improvement; active activities include:
•Requiring rectification plans and monitoring milestones; •Requiring revised business plans; •Increasing capital requirements; •Issuing directions; •Accepting enforceable undertaking, often to exit the business by finding a new and sounder owner. •Engaging external resources, such as specialist investigator, actuary etc to report of APRA •Consideration of fitness and propriety issues.
