The regulatory landscape for financial institutions in Australia has undergone significant changes in recent years, especially in terms of encouraging collaboration and information sharing, addressing risks, and supporting innovation. 

This has resulted in the need for a more proactive approach to ensure financial security compliance.

The state of Australia’s finance sector in 2023

Australia’s financial services sector is the largest contributor to the national economy, adding $140 billion to the GDP annually and employing over 450,000 people. The country is also home to some of the most profitable banks in the world—the Commonwealth Bank, Westpac, Australia & New Zealand Banking Group, and National Australia Bank.

As such, Australia has taken steps to firmly regulate its finance sector, encompassing all of its financial institutions like Authorised Deposit-taking Institutions (ADIs), non-bank financial intermediaries, as well as insurers and fund managers.

The four main regulatory bodies are the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investment Commission (ASIC), the Reserve Bank of Australia (RBA), and the Australian Transaction Reports and Analysis Centre (AUSTRAC).

With emerging issues in cybersecurity, climate change, and environmental, social, and corporate governance (ESG) affecting the finance sector, these regulators have taken steps to introduce new regulations and ensure compliance.

Here are the considerations that financial institutions in Australia must make to ensure financial security compliance.

Regulatory changes in Australia’s financial landscape

The Australian government is ever-vigilant about developments within the country’s financial sector, which is apparent with the recent regulatory changes that have taken place.

The Financial Accountability Regime (FAR) is one such instance, where a strengthened responsibility and accountability framework was introduced to APRA-regulated entities in banking, insurance, and superannuation. FAR aims to foster a better risk and governance culture in these financial institutions.

The government has also taken steps to modernise the regulatory frameworks associated with financial institutions so that they are better suited to manage emerging risks like cyber threats and climate change and innovations like crypto-assets and decentralised finance.

The entire world is experiencing the effects of risks like inflation, interest rate shocks, and cybersecurity concerns, especially in the wake of the general economic downturn. As such, regulations also place a particular focus on improving resilience and risk management. Financial institutions will enhance their data, governance, and operational risk frameworks to evolve and ensure financial security compliance.

Considerations to make in ensuring financial security compliance

Financial institutions in Australia need to make several key considerations to ensure compliance. One of the most important is data security.

The Privacy Act dictates the regulations that need to be followed in this instance, such as notifying affected individuals and the Office of the Australian Information Commissioner when a data breach has the potential to cause serious harm.

Improving risk management procedures is also an important consideration for financial institutions. This means enhancing the data, governance, and operational risk frameworks that are in place. Financial institutions must also focus on incorporating BASEL III as the new capital structure and implementing Business Continuity Planning.

Financial institutions must also work towards enhancing operational resiliency and security, particularly in the case of cybersecurity. Data breaches through cyber-attacks cause the financial sector the second highest costs at $5.9 million per attack. As such, cyber risk resilience is a top consideration for both regulators and industry participants.

Regulators, ASIC in particular, have adopted a “why not litigate” approach when assessing the compliance of financial institutions—resulting in higher commenced proceedings, particularly for larger institutions. This means that addressing compliance requirements is now more important than ever.

The role of risk assessment in ensuring compliance

In the context of the current regulatory landscape where risk management is a primary consideration, finance risk assessment is vital for financial security compliance.

Risk assessments enable financial institutions to assess and prioritise compliance risks that can cause operational disruptions, gauge their likelihood and impact, and formulate mitigation strategies.

This may involve helping institutions align with specific regulatory requirements like the Financial Accountability Regime and APRA standards.

Since the regulatory landscape for Australian financial institutions seems to be shifting quickly, incorporating risk assessment solutions that can help them keep track of these changes and implement controls is vital to ensure compliance and continuity.

Ensure compliance in your financial institution with proven risk assessment solutions from SECTARA

Adhering to standards and ensuring compliance is now more important than ever—and that is exactly what SECTARA aims to help your financial institution achieve.

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