Operational Resilience in Australia
Prudential Standard CPS 230230
Enhancing Operational Risk Management and Resilience
Prudential Standard CPS 230 is operational resilience and was issued by the Australian Prudential Regulation Authority (APRA). It is intended to strengthen the operational resilience and risk management requirements for APRA-regulated entities that include banks, insurers and superannuation funds. The standard is effective from 1 July 2025 and requires that all entities can continue to deliver critical services and meet obligations in the face of, and recover from, operational disruption.
Operational risks – such as cyber-attacks and IT outages, third party providers and supply chain failures – have become more complex in the digital age, with greater use of outsourcing and an ever-evolving threat environment. APRA signalled the importance of addressing operational resilience to support financial stability and to ensure systemic failures will not adversely impact consumers (APRA, 2023).
Key Requirements of CPS 230
CPS 230 prescribes a number of mandatory risk management practices that regulated entities must adopt, focussing on a proactive and systematic approach to the management of operational risk and resilience.
1. Operational Risk Management Framework
- Institutions are required to establish a comprehensive operational risk management framework that identifies, assesses, mitigates and reports on operational risks.
- The framework should be consistent with the institution’s broader risk management strategy and commensurate with the size, complexity and risk profile of the institution.
- The framework should be subject to periodic review to ensure it remains effective in managing emerging risks (APRA, 2023).
2. Business Continuity Management (BCM)
- Robust business continuity plans (BCPs) are mandatory and are used by institutions to maintain the ability to perform critical activities during disruptions.
- Regular testing (including scenario analysis and simulation exercises) that tests the BCP is required to assess the resilience of the institution.
- Key risks that BCM deals with include cyberattacks, natural disasters, IT system failures, and operational errors (APRA, 2023; RBA, 2022).
- APRA requires that institutions establish and document their tolerance for operational disruptions in order to ensure timely resumption of activities (APRA, 2023).
3. Service Provider Management
- Due to the increasing reliance on third party service providers, CPS 230, imposes strict requirements on the treatment of outsourcing and third party risk.
- Comprehensive due diligence on significant service providers is compulsory, and confirmation of adherence to regulatory and security requirements is required.
- Service level agreements (SLAs), security requirements, and contingency arrangements should be clearly documented in contracts to manage the risks of provider failure.
- Ongoing monitoring, as well as regular risk assessments and audit of third parties, will be necessary to demonstrate continued compliance (APRA, 2023; ASIC, 2022).
4. Incident Management and Reporting
- Entities must establish an incident management framework that enables swift and effective responses to operational disruptions.
- Institutions are required to report significant incidents to APRA in a timely manner, detailing the nature of the event, its impact, and mitigation steps taken.
- Cybersecurity breaches, technology failures, and fraud events fall under the scope of incident reporting requirements (APRA, 2023; OAIC, 2021).
5. Resilience Testing
- Institutions must conduct regular resilience testing to evaluate their ability to withstand and recover from severe operational disruptions.
- Testing scenarios should include cyberattacks, major third-party service failures, data breaches, and supply chain disruptions.
- APRA encourages financial institutions to use industry-wide resilience exercises and stress testing frameworksto benchmark their preparedness against sector peers (APRA, 2023; BIS, 2022).
WHO DOES IT IMPACT?
It is a scalable standard that allows organizations to take steps that are appropriate to their size, complexity and risk profile. Smaller to medium size institutions have some flexibility how to implement the standard, whilst larger entities will need to implement more advanced frameworks to meet the increased regulatory expectations (APRA, 2023).
CPS 230 applies to all APRA-regulated entities, ensuring that different financial institutions adopt operational resilience measures suited to their scale and complexity. These include:
Timeline CPS 230 (Where are we?)
2023-2024
Initial Preparations
Institutions must assess their current operational risk management frameworks and identify gaps relative to CPS 230 requirements.
01 July 2025
Effective Date
By this date, all APRA-regulated entities must fully comply with CPS 230 requirements.
APRA has stressed the importance of early adoption to mitigate risks and ensure a smooth transition without disruptions (APRA, 2023).
Why is CPS 230 Important?
1. Strengthening Operational Resilience
- Operational risks, such as cyber attacks, information technology failures and risks related to third-party suppliers, represent significant challenges for financial institutions.
- CPS 230 requires a risk-based approach to managing these risks, thereby enabling institutions to prevent, respond to, and recover from operational disruption.
2. Safeguarding Consumer Trust
- CPS 230 greatly strengthens public trust in the financial system through the consistent application of rigorous risk management measures.
- Continued delivery of critical services throughout times of crisis also contributes to maintaining the reputation and confidence of their consumers in the institution (APRA, 2023; ASIC, 2022).
3. Mitigating Systemic Risks
- One individual failure at one financial institution can cause a chain reaction of losses to others.
- The CPS 230 regime prevents a contagion from spreading by requiring firms to take appropriate steps to ensure they continue to operate within a sound and resilient structure that maintains the financial system’s overall stability (BIS, 2022).
4. Promoting Regulatory Compliance
- CPS 230 brings the Australian financial institutions into alignment with the international leading standards in operational risk management.
- Compliance also contributes to the deepening of international markets and the reduction of regulatory costs (APRA, 2023; RBA, 2022).
5. Responding to Emerging Threats
- Rising cyber threats, the growth of digital transformation, and increased reliance on third-party service providers drive the need for modern risk management approaches.
- The CPS 230 standard presumes an evolutionary and risk-aware system to ensure that ADIs maintain a level of flexibility and resilience to respond to evolving operational risk profiles highlighted in the inferences made by APRA (2023) and OAIC (2021) reports.
Detailed Breakdown of CPS 230 Requirements
A comprehensive overview of operational risk, business continuity, service provider management, and incident management.
Operational Risk Management Framework
Institutions must:
- Define operational risk categories, including personnel, processes, technology, and external events (APRA, 2023).
- Establish a risk governance structure with assigned roles and responsibilities for managing operational risks (Deloitte, 2023).
- Integrate the framework into enterprise-wide risk management strategies, ensuring alignment with regulatory and business objectives (PwC, 2023).
- Conduct regular risk assessments and update risk controls based on emerging threats and vulnerabilities (KPMG, 2023).
- Implement internal reporting mechanisms to track risk exposures and mitigation actions (APRA, 2023).
Business Continuity Management
Business continuity plans (BCPs) must:
- Include detailed recovery strategies for critical operations, identifying core business functions and acceptable downtime limits (APRA, 2023).
- Identify internal and external dependencies, including key suppliers, technology systems, and personnel (Deloitte, 2023).
- Establish contingency measures for different disruption scenarios, such as cyberattacks, natural disasters, and infrastructure failures (PwC, 2023).
- Be tested regularly through simulations and independent reviews to ensure effectiveness and responsiveness (KPMG, 2023).
- Provide clear communication protocols for internal teams, regulators, and customers in the event of a disruption (APRA, 2023).
Service Provider Management
APRA-regulated entities must:
- Conduct thorough due diligence on third-party service providers before engagement, assessing their ability to meet operational standards (APRA, 2023).
- Include detailed contractual terms regarding performance expectations, monitoring mechanisms, compliance requirements, and termination conditions (Deloitte, 2023).
- Implement ongoing monitoring frameworks, requiring periodic performance reviews and risk assessments of service providers (PwC, 2023).
- Establish contingency plans for the failure of critical service providers, ensuring minimal disruption to business operations (KPMG, 2023).
- Report significant service provider-related risks or disruptions to APRA as part of the compliance framework (APRA, 2023).
Incident Management
Institutions must:
- Implement real-time monitoring tools to detect and assess operational incidents promptly (APRA, 2023).
- Develop clear escalation processes for incident reporting, ensuring swift response and mitigation (Deloitte, 2023).
- Establish structured incident response teams with defined roles and responsibilities for managing disruptions (PwC, 2023).
- Maintain detailed incident logs to analyze trends and improve resilience against future occurrences (KPMG, 2023).
- Provide timely and comprehensive reports to APRA on significant incidents, including root cause analysis and corrective actions taken (APRA, 2023).
How to leverage UK and DORA Compliance for Australia CPS 230
| Requirement | APRA CPS 230 | UK Operational Resilience Framework | EU Digital Operational Resilience Act (DORA) |
|---|---|---|---|
| Comprehensive Operational Risk Management | Develop and maintain a framework that effectively identifies, assesses, and manages a full spectrum of operational risks, including legal, compliance, conduct, technology, data, and change management risks. | Emphasizes the identification of important business services and setting impact tolerances to ensure firms can continue to deliver these services during disruptions. | Focuses on ICT risk management, requiring entities to implement and regularly review their ICT risk management frameworks to ensure digital operational resilience. |
| Business Continuity Planning (BCP) | Establish robust BCPs to ensure critical operations can continue within set tolerance levels during disruptions. This includes regular testing and clear documentation of continuity strategies. | Requires firms to map and test their ability to remain within impact tolerances for important business services, ensuring continuity during disruptions. | Mandates a robust framework for ICT business continuity and disaster recovery, focusing on digital operational resilience. |
| Service Provider Management | Implement comprehensive policies for managing risks associated with service providers, including due diligence, formal agreements, and ongoing monitoring to ensure they meet operational resilience standards. | Emphasizes the need for firms to ensure third-party providers do not impede their ability to deliver important business services within impact tolerances. | Establishes guidelines for oversight of critical ICT third-party providers, including mandatory registration and risk management requirements. |
| Governance and Board Responsibilities | Ensure the Board of Directors oversees operational risk management, including business continuity and service provider arrangements, with clear roles and responsibilities assigned to senior management. | Requires boards and senior management to take ownership of operational resilience, including setting and reviewing impact tolerances. | Imposes specific governance requirements on ICT risk management, including board-level accountability. |
| Incident Management and Reporting | Establish protocols to identify, escalate, record, and address operational risk incidents and near misses promptly. Notify APRA of incidents with material impact within specified timeframes. | Requires firms to have incident management processes to respond to and recover from disruptions, ensuring lessons are learned and improvements made. | Mandates reporting of major ICT-related incidents to regulators within strict timelines. |
| Testing and Continuous Improvement | Regularly test business continuity plans using severe but plausible scenarios, and continuously monitor, review, and improve operational risk controls to address any identified weaknesses. | Requires firms to conduct regular testing to ensure they can remain within impact tolerances for important business services during disruptions. | Encourages testing for digital operational resilience, including penetration testing. |
8 Key points of CPS 230
1
Comparative Analysis with Global Standards
While CPS 230 aligns with international regulatory developments, the following detailed comparison to similar frameworks offers more detailed guidance on such global standards:
- United Kingdom: The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have implemented Operational Resilience requirements, focusing on Impact Tolerances and testing methodologies.
- European Union: The Digital Operational Resilience Act (DORA) introduces stringent ICT and third-party risk management rules.
- United States: The Federal Reserve, OCC, and FDIC emphasize resilience in financial market infrastructure and cybersecurity preparedness.
Understanding these differences helps multinational financial institutions harmonize compliance efforts across jurisdictions.
2
Practical Implementation Guidance
Although CPS 230 requires the identification and management of operational risk, it is essential for organizations to have a clear plan for successful implementation of these requirements:
- Operational Risk Taxonomy: Define categories such as cyber threats, IT failures, and third-party dependencies.
- Integration with Existing Frameworks: Align CPS 230 requirements with ISO 22301 (Business Continuity) and NIST (Cybersecurity Framework).
- Scenario-Based Testing: Implement real-world stress testing to assess resilience to systemic shocks and cyber incidents.
- RegTech Solutions: Utilize AI-driven compliance tools to automate risk assessments and reporting mechanisms.
3
Real-World Case Studies and Examples
Illustrating past operational failures can contextualize CPS 230’s importance:
- Banking Sector: Cyberattacks on payment systems disrupting financial transactions.
- Insurance Industry: Data breaches leading to policyholder information leaks.
- Superannuation Funds: Third-party administrator failures delaying pension payments.
Learning from past incidents allows financial institutions to proactively address vulnerabilities before regulatory deadlines.
4
Industry-Specific Implications
Each financial sector faces unique challenges under CPS 230:
- Banks: Digital banking disruptions, payment system resilience, and fraud prevention.
- Insurers: Claims processing continuity, climate risk exposure, and third-party service management.
- Superannuation Funds: Custodian and administrator oversight, investment operational risk, and member service continuity.
Tailoring CPS 230 compliance to sector-specific risks enhances regulatory alignment and operational preparedness.
5
Enforcement and Penalties for Non-Compliance
Understanding APRA’s enforcement approach is crucial:
- Supervisory Oversight: APRA will conduct resilience testing, audits, and targeted reviews.
- Penalties for Non-Compliance: Institutions may face regulatory interventions, financial penalties, and reputational damage.
- Remediation Expectations: APRA expects proactive risk mitigation and board-level oversight on operational resilience efforts.
6
Technological & Cybersecurity Aspects
CPS 230 mandates robust cybersecurity controls and resilience strategies:
- Advanced Cybersecurity Measures: Adoption of zero-trust architecture, real-time threat intelligence, and penetration testing.
- AI and Automation: Leveraging AI-driven risk assessment tools to identify and mitigate operational vulnerabilities.
- Cloud and Third-Party Risk Management: Implementing stringent vendor assessments and multi-cloud resilience strategies.
7
APRA’s Supervisory Expectations & Industry Consultation Feedback
APRA has engaged in industry consultation to refine CPS 230 implementation:
- Regulatory Guidance: Additional clarifications on incident reporting thresholds and risk assessment methodologies.
- Industry Concerns: Challenges in meeting third-party resilience requirements and balancing compliance costs.
- Potential Refinements: Adjustments to proportionality measures for smaller institutions.
Keeping track of APRA’s evolving guidance ensures institutions remain compliant and adaptive to regulatory changes.
8
Next Steps & Recommendations
To ensure timely CPS 230 compliance, financial institutions should:
- Conduct a Gap Analysis: Identify shortcomings in existing risk frameworks against CPS 230 requirements.
- Enhance Third-Party Oversight: Update contracts, conduct audits, and implement resilience plans for key service providers.
- Board and Senior Management Engagement: Ensure leadership is actively involved in risk governance and strategic decision-making.
- Early Testing and Simulation Exercises: Validate business continuity plans through regular stress tests and industry-wide resilience drills.
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