Managing Third Party Risks & Building Resilience under CPS230

Under APRA’s CPS230, financial institutions face heightened obligations to ensure operational resilience and effective risk management. One key area is the development of a comprehensive service provider management policy. This policy isn’t just about compliance — it's a blueprint to effectively manage the third and fourth party risks associated with service providers, formal agreements and robust monitoring to ensure seamless operations.

In the financial services industry, third party risk management is crucial for maintaining operational resilience and safeguarding against potential disruptions. Engaging with external service providers introduces a range of risks that, if not properly managed, can impact an institution's ability to operate effectively. This is why robust third party risk management practices are essential.

A well-defined supplier policy provides clarity and consistency in how an organization engages with and oversees external providers. It ensures that governance structures are clear, performance and compliance expectations are set, and procedures for handling disruptions or terminations are in place. By taking these steps, organisations can minimize risks and maintain seamless operations.

Understanding CPS230 Governance Requirements

APRA’s CPS230 imposes heightened obligations on financial institutions to ensure operational resilience and effective risk management. Compliance with CPS230 requires organisations to establish and maintain comprehensive policies and procedures for managing service provider relationships.

Key requirements include defining governance structures, setting performance and compliance expectations, and detailing procedures for handling disruptions or terminations. Additionally, institutions must ensure that they have robust mechanisms in place for monitoring and managing risks associated with both third and fourth party service providers.

Why Supplier Policies Matter‍

Supplier policies provide clarity and consistency in how your organisation engages with and oversees external providers. For CPS230, this translates into defining clear governance structures, setting performance and compliance expectations, and detailing procedures for handling disruptions or terminations.

Creating or enhancing your supplier policy requires more than just ticking boxes. The policy must include the organisation’s approach to:

1. entering into, monitoring, substituting and exiting agreements with material service providers (MSPs);
2. Managing the risks associated with MSPs; and
3. Managing the risks associated with any fourth parties that MSPs rely on to deliver a critical operation to the APRA-regulated entity.

Developing a Comprehensive Service Provider Management Policy

Creating or enhancing a service provider management policy involves more than just ticking boxes. It requires a thoughtful and strategic approach to managing service provider relationships. First, organisations need to establish clear criteria for entering into, monitoring, substituting, and exiting agreements with material service providers (MSPs).

Secondly, the policy must outline the organisation’s approach to managing risks associated with MSPs, including those related to any fourth parties that MSPs rely on. This involves conducting thorough due diligence, setting clear performance expectations, and establishing processes for ongoing monitoring and risk management.

Effective Monitoring and Management of Material Service Providers

Effective monitoring and management of material service providers are critical components of a robust supplier policy. Organisations must implement tools and mechanisms to continuously track supplier performance and adherence to agreed terms. This includes maintaining a register of material service providers and regularly reviewing their performance.

Engaging stakeholders from procurement, legal, and risk teams is essential to align on policy expectations and ensure a cohesive approach to supplier management. By doing so, organisations can proactively identify and mitigate risks, ensuring that service providers meet the required standards and contribute to operational resilience.

Leveraging Technology for Seamless Compliance

Navigating CPS230 compliance demands precision and expertise. Leveraging technology can simplify the process of managing supplier policies and ensuring compliance. Advanced tools can help organizations assess, refine, and monitor their supplier policies, reducing the administrative burden on internal teams.

By integrating technology solutions, financial institutions can achieve seamless compliance with CPS230 requirements. These tools enable continuous monitoring, real-time reporting, and proactive risk management, ensuring that organisations remain compliant without overwhelming their teams. Partnering with experts like Ethika can further enhance this process by providing tailored solutions and support.

Takeaways for Risk Professionals

1. Review Existing Service Provider Policy: Ensure they meet the requirements of CPS230.
2. Engage Stakeholders: Collaborate with procurement, legal, and risk teams to align on policy expectations.
3. Implement Monitoring Mechanisms: Use tools to identify and maintain a register of material service providers and continuously track supplier performance and adherence to agreed terms.

How Ethika Can Help‍

Navigating CPS230 demands precision and expertise. If you are looking for an efficient and cohesive way to bring together your operational risk with the appropriate governance, Ethika simplifies the process by offering tools to assess, refine, and monitor your supplier policies, ensuring compliance without overwhelming your team. We will work with you to get your operational resilience working effectively with fit for purpose governance.