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The Australian Prudential Regulation Authority (APRA) has released an information paper that provides a snapshot of current practice in risk culture in a range of banking, insurance and superannuation businesses.

APRA defines risk culture as the influence of organizational culture on how risks are managed in an organization. It is how staff identify, understand, discuss and act on the risks an organization confronts and takes. All organizations have a risk culture regardless of whether it is actively considered or managed.

The APRA paper notes that while there has clearly been a stronger focus on risk culture in recent years amongst APRA-regulated institutions, continued effort and ongoing attention is required by institutions to better understand and manage their risk cultures. 

APRA began an information gathering exercise in relation to industry practices on risk culture in late 2015, and the new paper finds that:

  • Approaches to understand and manage risk culture are at a relatively early stage of development; and
  • Many institutions are grappling with how best to:
    - clearly articulate what type of risk culture they aspire to;
    - identify any specific weaknesses in their current risk culture; and
    - effectively address those weaknesses.

Underpinning much of this work has been APRA’s Prudential Standard CPS 220 Risk Management, which came into effect on 1 January 2015. Amongst other things, CPS 220 requires each Board of an authorised deposit-taking institution (ADI) or insurer to form a view of the risk culture in their institution, identify any desirable changes to that risk culture, and ensure the institution takes steps to address those changes. 

Read the Information Paper. (PDF)

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