8 End of Financial Year considerations for ADIs

Alongside these pressures manifesting through fast-rising interest rates, inflation and consumer sentiment slowing, increased regulatory demands around risk management and sustainability from the Australian Prudential Regulation Authority (APRA) mean there are more elements to consider in looking forward into FY24.

How can you best navigate current challenges and leverage opportunities to find efficiencies as you step into the new financial year? Here, we outline eight key considerations you should address to ensure your business is set up for FY24.

Proactive approach to regulatory change

With the looming implementation of CPS 511 Remuneration & Financial Accountability Regime (FAR), CPS 230 Operational Risk Management and CPS 190 Recovery and resolution planning, ADIs should set up mechanisms, frameworks and policies to prepare for the regulatory changes. APRA will be constructively tough in assessing compliance with the upcoming requirements and focus on operational and financial resilience.

Expected Credit Loss provisioning

Both confidence in your data and accurate documentation are a must to ensure a robust and sustainable methodology, and to ensure your audit process is smooth. Updating methodology to account for evolving macro-economic factors including high inflation, rising interest rates and global trends is essential.

Processes undertaken and assumptions or judgements made must be formally documented by tracking all relevant credit information and sources used.

Establishing sustainability reporting frameworks

Treasury has proposed to mandate environmental, social and corporate governance (ESG) and sustainability reporting from 1 July 2024. While nothing is set in stone yet, being on the front foot with measurement will be key to ensure you have plenty of time to consider risks aligned with gaps in meeting the standards set by regulators, stakeholders, or the broader public. As the guidance and standards on the disclosures in sustainability reports continue to evolve, it’s important you receive the right advice and assistance to ensure your reporting meets the needs of stakeholders.

Tax Risk Governance 

The Australian Tax Office (ATO) continues to raise the bar and broaden its Combined Assurance Review (CAR) framework. Setting up an effective, robust tax risk management and governance framework while demonstrating transparency and good corporate governance ensures your business is equipped to face ATO inquiries into tax systems and controls.

Operational Risk management frameworks

Now is the time to prepare for CPS 230 Operational Risk Management, refresh operational risk appetite metrics, and review processes and controls with respect to outsourced service providers. Steps to minimise the impact of emerging risks, stress-test approaches and establish relevant steps to minimise disruptions that may occur need to be considered ahead of the new standard coming into effect from 1 July 2025.

Cyber and privacy considerations

There’s significant change ahead for privacy laws in Australia, and data governance needs to be a top priority. For organisations to be well-positioned from an operational resilience, regulatory compliance and security perspective, they will need to consider three key elements: cyber security, privacy, and data governance. This will enable them to have strong strategies in place to effectively deal with cyber incidents, understand risks and have a response framework in place to manage the impact of these events.

Financial modelling

Robust financial modelling is essential to future-proof your business and respond to regulatory expectations centred around scenario planning, recovery and exit planning.

Through financial modelling, organisations can draw learnings from the year’s performance, adequately measure risks and growth opportunities, stress-test the robustness of policies and compliance metrics and, if appropriate, consider contingency plans to support your growth ambitions.  

Embedding your Digital Strategy

It’s important to consider how you can future-proof your business and de-risk transformation projects. Alongside this, understanding market trends like open banking, omni-channel and cloud technologies, and reflecting on the local and global payments landscape should be a key component of strategic planning.

For more information around how mutual banks, credit unions, foreign bank subsidiaries and other banking organisations can minimise their risk profile as we near end of financial year, please get in touch or listen back to our ADI virtual conference.