1. CPG 230 Risk Management Framework

An effective risk management framework is essential for identifying, assessing, and mitigating operational risks. The Prudential Practice Guide CPG 230 outlines key components of such a framework, including governance, risk assessment, internal controls, business continuity planning, and service provider management. These elements work together to create a comprehensive approach to managing operational risks.

Governance

• Requirement: Entities must establish governance arrangements for the oversight of operational risk.
• Avocado’s Comment: Effective governance is the cornerstone of robust operational risk management. Avocado can help you improve your third party and cyber governance frameworks based on your organisation’s size and complexity, ensuring that oversight is comprehensive and effective.

Assessment

• Requirement: Develop a comprehensive assessment of the operational risk profile with defined risk appetite, supported by indicators, limits, and tolerance levels.
• Avocado’s Comment: A thorough risk assessment is essential for understanding and mitigating potential risks. Avocado’s GRC services include third-party risk assessment, security assessment and risk quantification that can help you define and monitor your risk appetite, ensuring that your operational risk profile is always up-to-date and accurate.

Internal Controls

• Requirement: Design and maintain effective internal controls, regularly monitoring and testing them.
• Avocado’s Comment: Regular monitoring and testing of internal controls are crucial for identifying weaknesses before they become critical issues. Avocado can assist in designing and implementing a robust technology control assurance program including continuous monitoring of cloud services and third-party solutions.

Business Continuity Plans (BCPs)

• Requirement: Create BCPs to manage and respond to disruptions, tested with severe but plausible scenarios.
• Avocado’s Comment: Business continuity is vital for operational resilience. Avocado’s expertise in developing and testing BCP and Disaster Recover (DR) plans ensures that your organisation can swiftly respond to and recover from disruptions, maintaining critical operations.

Service Provider Management

• Requirement: Implement processes for managing service provider arrangements.
• Avocado’s Comment: Managing third-party risks is essential for operational resilience. Avocado can help you establish and maintain processes for effective service provider due diligence and ongoing management, ensuring compliance and continuity.

2. CPG 230 Roles and Responsibilities

Clear roles and responsibilities are crucial for effective operational risk management. The Prudential Practice Guide CPG 230 outlines the distinct responsibilities of the board of directors and senior management, emphasising the need for accountability and comprehensive oversight.

Board of Directors

• Requirement: Ultimately accountable for operational risk management, approving BCPs, setting tolerance levels, and overseeing service provider arrangements.
• Avocado’s Comment: The board’s involvement is critical for operational risk management. Avocado provides training and advisory services to ensure your board is well-equipped to oversee and approve necessary cyber risk management frameworks and plans.

Senior Management

• Requirement: Responsible for providing comprehensive information to the board, ensuring effective operational risk management across business operations.
• Avocado’s Comment: Senior management plays a pivotal role in operational risk management. Avocado supports your leadership team with the tools and insights needed to provide the board with comprehensive and actionable cyber risk information.

3. CPG 230 Operational Risk Management

Managing operational risk requires a comprehensive approach that addresses various risk types, integrates IT capabilities, continuously assesses the risk profile, and utilises scenario analysis. The Prudential Practice Guide CPG 230 provides detailed guidance on these aspects to help entities strengthen their operational resilience.

Risk Types

• Requirement: Manage a range of operational risks including legal, regulatory, compliance, conduct, technology, data, and change management risks.
• Avocado’s Comment: Operational risks are diverse and complex. Avocado’s comprehensive cyber risk and technology services cover all areas of technology, data management, change management and cybersecurity providing you with a holistic approach to technology risk.

IT Capability

• Requirement: Maintain robust IT systems to support critical operations and manage technology risks, meeting requirements set out in CPS 234 Information Security.
• Avocado’s Comment: Technology risks can severely impact operations. Avocado’s IT and cybersecurity solutions ensure your systems are resilient, secure, and compliant with regulatory requirements.

Operational Risk Profile

• Requirement: Continuously assess and update the operational risk profile, considering impacts of new products, services, geographies, and technologies.
• Avocado’s Comment: Keeping your operational risk profile current is essential for effective risk management. Avocado provides continuous monitoring and assessment services to ensure your risk profile accurately represents your changing business environment.

Scenario Analysis

• Requirement: Use scenario analysis to test operational resilience and identify potential improvements in controls.
• Avocado’s Comment: Scenario analysis helps anticipate and mitigate risks. Avocado can facilitate cyber and technology risk scenario planning sessions, helping you test your operational resilience and refine your controls.

4. Incident Management and Notification

Effective incident management and timely notification are vital for minimising the impact of operational disruptions. The Prudential Practice Guide CPG 230 emphasises the importance of identifying, escalating, and addressing incidents promptly, as well as notifying APRA within specified timeframes.

Incident Reporting

• Requirement: Identify, escalate, and address operational risk incidents and near misses promptly. Notify APRA within 72 hours if an incident is likely to have a material impact.
• Avocado’s Comment: Timely incident reporting is crucial for mitigating impact. Avocado’s monitoring solutions ensure rapid identification, escalation, and resolution of operational risk incidents.

Disruptions

• Requirement: Notify APRA within 24 hours if a critical operation is disrupted beyond tolerance levels.
• Avocado’s Comment: Swift notification of disruptions is key to compliance. Avocado’s monitoring and cyber advisory services ensure you meet regulatory requirements and manage critical operations effectively.

5. Service Provider Arrangements

Managing service provider arrangements is crucial for maintaining operational resilience, especially when relying on external providers. The Prudential Practice Guide CPG 230 outlines the requirements for managing these arrangements, including offshoring considerations.

Material Service Providers

• Requirement: Ensure entities can continue to meet prudential obligations when relying on service providers.
• Avocado’s Comment: Effective service provider management is essential for continuity. Avocado helps you establish robust processes for managing material service providers, ensuring they meet your prudential obligations.

Offshoring

• Requirement: Notify APRA before entering into or significantly changing offshoring agreements with material service providers.
• Avocado’s Comment: Offshoring poses unique risks. Avocado provides guidance on managing these risks and ensuring compliance with regulatory notifications.

6. Continuous Improvement and Remediation

Continuous improvement and prompt remediation of weaknesses are essential for maintaining robust operational risk management practices. The Prudential Practice Guide CPG 230 emphasises the need for regular reviews and effective remediation strategies.

Regular Reviews

• Requirement: Conduct regular reviews of operational risk management frameworks and practices, integrating findings into ongoing risk management.
• Avocado’s Comment: Continuous improvement is vital for staying ahead of risks. Avocado’s review and audit services ensure your cyber and technology risk management practices are regularly evaluated and improved.

Remediation

• Requirement: Address material weaknesses in operational risk management promptly, ensuring root causes are identified and rectified.
• Avocado’s Comment: Prompt remediation of weaknesses is essential for operational resilience. Avocado helps you identify root causes and implement effective remediation strategies to strengthen your risk management framework.

CPG230: Final thoughts

Operational risk management is indispensable for financial institutions aiming to maintain stability and resilience in a complex and evolving risk landscape. The Prudential Practice Guide CPG 230 provides a solid foundation for enhancing operational resilience, and with Avocado’s technology and cyber security services, your organisation can effectively implement these principles. By emphasising proportionality, robust governance, comprehensive risk management, timely incident response, effective service provider management, and continuous improvement, you can safeguard your operations and ensure compliance with APRA standards.

Avocado offer a free initial consultation to help you understand your CPG 230 technology, third party and cyber needs.  Book in a free consultation to start navigating the complexities of operational risk management and achieve operational excellence.