SPS 114 and CPS 230: Interworking and Key Insights

SPS 114 and CPS 230 APRA Analysed with Implementation Guide

Superannuation / Risk and Regulatory Changes / SPS 114 and CPS 230 Analysis

Introduction: SPS 114 and CPS 230 Interworking

In this report, we have analysed the SPS 114 changes and how it interacts with the CPS 230 and outlined key steps for implementing SPS 114 and CPS 230 effectively. The full version of this report is available in PDF and is designed to help RSE licensees ensure compliance and maintain robust operational risk management.

SPS 114: Key Changes:

To begin with, it’s crucial to grasp the key statistics related to SPS 114:

  • 0.25% of Funds Under Management (FUM): RSE licensees must maintain an Operational Risk Financial Requirement (ORFR) target amount of at least 0.25% of FUM.
  • 0.25% of Liabilities for Defined Benefit Funds: Defined benefit funds must set their ORFR target amount as 0.25% of liabilities in respect of vested benefits.
  • 0.175% for Pooled Superannuation Trusts: Pooled superannuation trusts are required to maintain an ORFR target amount of at least 0.175% of aggregate FUM.
  • Annual Review Requirement: RSE licensees are mandated to conduct annual reviews of ORFR targets and tolerance limits, ensuring continuous compliance and financial stability.
  • Board-Approved Replenishment Plans: Any shortfall in ORFR financial resources must be addressed with a Board-approved replenishment plan, including explanations for the shortfall, funding sources, and expected replenishment dates.

SPS 114 and CPS 230 Insights

SPS 114 update

CPS 230 and SPS 114 Interworking

SPS 114 Implementation Plan
CPS 230 Implementation Plan
cps 230 implementation

APRA CPS 230

Integrated Risk Management Framework

SPS 114 and CPS 230 together establish a comprehensive framework for managing operational risks within superannuation funds. SPS 114 focuses on maintaining financial resources for operational risks, while CPS 230 provides broader guidelines for operational risk management, ensuring a cohesive approach.

Consistency in Compliance

Aligning SPS 114 with CPS 230 simplifies the compliance process for RSE licensees by ensuring consistent standards and expectations across different aspects of operational risk management, thereby reducing complexity and administrative burden.

Enhanced Risk Mitigation

The detailed requirements of SPS 114 for ORFR, combined with the broader operational risk management strategies of CPS 230, strengthen the overall risk mitigation capabilities of RSE licensees. This ensures a more robust protection framework for beneficiaries.

Regulatory Synergy

The alignment of SPS 114 and CPS 230 facilitates a synergistic relationship between specific financial requirements and general risk management practices. This alignment helps RSE licensees to create a more streamlined and effective risk management system that adheres to APRA’s prudential standards.

Proactive Regulatory Engagement

Both SPS 114 and CPS 230 emphasize the importance of proactive engagement with APRA. By aligning these standards, RSE licensees can more effectively communicate with the regulator, addressing both specific ORFR requirements and broader operational risk concerns in a unified manner.

Implementing SPS 114 and CPS 230: Key Steps

While the attached report provides a detailed analysis, here is a high level summary of the SPS 114 implementation approach.

Develop an ORFR Strategy

Create a comprehensive, Board-approved ORFR strategy that outlines objectives, target amounts, tolerance limits, and usage processes.

Annual Review and Audit

Conduct regular reviews and audits of ORFR targets and tolerance limits to ensure ongoing compliance and adjust as needed.

Engage with APRA

Maintain proactive communication with APRA, particularly when making material changes to the ORFR target amount or strategy.

Implement a Replenishment Plan

Establish a Board-approved replenishment plan to address any shortfalls in ORFR financial resources, detailing funding sources and expected replenishment dates.

Operationalise Changes in Registry System

Work with registry system vendors to integrate changes and ensure seamless implementation of SPS 114 requirements.

Conclusion

SPS 114 presents considerable changes that mandate strategic adjustments in ORFR and proactive management of resources and risk to ensure compliance. The changes outline the importance of maintaining robust financial resources to protect beneficiaries and require RSEs to adapt to the operational risk management frameworks. Implementation of SPS 114 involves meticulous planning and hands-on management to maintain compliance. Besides, Edwise Consulting has recently prepared a comprehensive report on the top 10 trends shaping Australian insurance industry. You can read the analysis and download the full report to get the strategic insights.

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