PRA issues model risk management principles        

The Prudential Regulation Authority (PRA) has issued Supervisory Statement (SS) 1/23 which outlines five principles considered key to implement a robust model risk management (MRM) framework and to help manage the risk effectively across all model and risk types. The principles are intended to support firms to strengthen their policies, procedures, and practices to identify, manage, and control the risks associated with the use of models. The principals are:  

• Principle 1 – Model identification and model risk classification  
• Principle 2 – Governance 
• Principle 3 – Model development, implementation and use  
• Principle 4 – Independent model validation 
• Principle 5 – Model risk mitigants 

The PRA state that “desired outcome of this SS is that banks take a strategic approach to model risk management (MRM) as a risk discipline in its own right.” 

The implementation date for the new MRM policy is 17^th May 2024. 

SEC proposes enhanced risk management for clearing agencies        

The Securities and Exchange Commission (SEC) has approved a proposal aimed at strengthening the resiliency of covered clearing agencies (CCAs). CCAs function as central counterparties or central securities depositories in securities transactions. The proposal requires CCAs to enhance their risk management policies and procedures. 

Under the proposed rules, CCAs would be required to establish a risk-based margin system that continuously monitors intraday exposure. They must also have the authority and operational capacity to make intraday margin calls as needed. The risk-based margin system should address the use of substantive inputs, even when such inputs are not readily available or reliable. 

Additionally, the proposal mandates that CCAs develop a recovery and wind-down plan. This plan should include specific elements that ensure the CCA’s operational continuity during a recovery and an orderly wind-down process. 

SEC Chair Gary Gensler emphasised that the proposal aims to ensure the continuity of clearing services, particularly during times of significant stress. Well-regulated and well-managed clearinghouses play a crucial role in lowering risk for the public and benefiting investors, issuers, and the markets. 

The proposal will be open for public comment for 60 days after its publication on the SEC website or 30 days after publication in the Federal Register, whichever period is longer. 

The Australian Prudential Regulation Authority (APRA) has finalised new requirements and guidance aimed at strengthening the preparedness of banks, insurers and superannuation funds to respond to a crisis. 

The regulator has issued a new prudential standard and two practice guides to help financial institutions. 

The objective of the new Prudential Standard CPS 900 Resolution Planning (CPS 900) is to ensure that APRA-regulated entities can be resolved by APRA in an orderly manner if needed, where bespoke planning and pre-positioning is required. The aim of resolution is to protect beneficiaries, minimise disruption to the financial system, and provide continuity of critical functions in the event an entity becomes non-viable. 

Practice guide CPG 190 sets out guidance for all APRA-regulated entities to assist in the implementation of Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190). Under CPS 190 — which had already been approved by the regulator in December 2022 — all APRA regulated entities are required to undertake recovery and exit planning so that they are ready to respond to stress that may threaten their viability. 

Practice Guide CPG 900 provides guidance to support the implementation of CPS 900. 

CPS 190 will come into effect from 1 January 2024 for banks and insurers, and from 1 January 2025 for RSE licensees. APRA will be engaging with entities on their approach to implementation ahead of the effective dates.  

CPS 900 will formally come into effect from 1 January 2024. 

Daniel Farook Ali, an unlicensed foreign exchange trader, has appeared before the Brisbane Magistrates Court, facing eight counts of fraud amounting to $977,000. Mr. Ali’s extradition from Poland and subsequent arrest followed an investigation by the Australian Securities and Investments Commission (ASIC). 

ASIC alleges that between May 2016 and November 2017, Mr. Ali misused funds entrusted to him by investors for unauthorised purposes. Instead of using the funds for trading and investment as agreed, he allegedly used them to purchase real estate and luxury vehicles for his family members and related companies, as well as to pay returns to other investors.