APRA Risk Mitigation Agreement: What You Need to Know
APRA risk mitigation agreement (ARMA) is a regulatory measure implemented by the Australian Prudential Regulation Authority (APRA) to promote better risk management in the financial industry. It is a voluntary agreement between APRA-regulated entities and APRA which sets out the expectations for risk management and the steps that entities should take to mitigate risks.
The ARMA was introduced in 2002 and since then, it has been updated to reflect the changing risk landscape. The agreement covers a wide range of risks, including credit risk, market risk, liquidity risk, operational risk, and insurance risk.
Why is ARMA important?
ARMA is important for several reasons, including:
1. Enhancing financial stability
ARMA helps to enhance financial stability by promoting better risk management practices among APRA-regulated entities. Effective risk management reduces the likelihood of financial distress and helps to ensure the continuity of financial services.
2. Protecting customers
ARMA helps to protect customers by ensuring that APRA-regulated entities have adequate risk management systems in place. This reduces the risk of customers being exposed to undue financial risks and potential loss.
3. Enhancing market confidence
ARMA helps to enhance market confidence by ensuring that APRA-regulated entities are taking sufficient steps to mitigate risks. This increases market confidence and promotes stability.
What does ARMA require?
ARMA requires APRA-regulated entities to:
1. Establish and maintain a risk management framework
APRA-regulated entities must establish and maintain a risk management framework that identifies, assesses, and manages risks in a consistent and effective manner.
2. Develop and implement risk management policies and procedures
APRA-regulated entities must develop and implement risk management policies and procedures that are consistent with their risk management framework.
3. Regularly review and update risk management policies and procedures
APRA-regulated entities must regularly review and update their risk management policies and procedures to ensure that they remain effective in managing risks.
4. Report to APRA on risk management practices
APRA-regulated entities must report to APRA on their risk management practices and the effectiveness of their risk management framework.
ARMA is an important regulatory measure that promotes better risk management practices among APRA-regulated entities. It helps to enhance financial stability, protect customers, and enhance market confidence. APRA-regulated entities should strive to meet the requirements of ARMA to ensure that they are managing risks effectively and in a consistent manner.