Draft Prudential Standard SPS 114 Operational Risk Financial Requirement - Clean.pdf

Here are the key points summarized:

Purpose: The Australian Prudential Regulation Authority (APRA) issued Prudential Standard SPS 114 Operational Risk Management Framework to ensure that superannuation entities manage operational risks effectively.

Key Requirements:

1. Operational Risk Management Framework: Establish an ORMF that identifies, assesses, and manages operational risks.
2. ORFR Target Amount: Determine a target amount of operational risk reserve (ORFR) that is sufficient to meet potential losses.
3. Tolerance Limit: Set a tolerance limit below which the ORFR must be replenished.
4. Replenishment Plan: Develop a plan to replenish the ORFR if it falls below the tolerance limit.
5. Review and Audit: Conduct annual reviews of the ORFR target amount and tolerance limit, and implement internal audit procedures and external audit arrangements.
6. Notification Requirement: Notify APRA prior to making a material change to the ORFR target amount.

Additional Requirements:

1. Ensure that operational risk reserves are separately identifiable from member accounts and reserves held for other purposes.
2. Ensure that trustee capital is held in a form equivalent to Common Equity Tier 1 capital.
3. Implement a replenishment plan that explains how the shortfall arose, how it will be replenished, and when the ORFR target amount will be met.
4. Obtain Board approval prior to implementing a replenishment plan.
5. Revise the replenishment plan if APRA considers it does not comply with the RSE licensee's duties and obligations.

Penalties: Failure to comply with these requirements may result in penalties or other enforcement actions by APRA.