"Effective risk management enables deposit takers to identify and mitigate risks proactively, reducing the likelihood of failures and building resilience in the financial system. This makes risk management central to our mandate of protecting and promoting financial stability," says Director of Financial System Assessment Kerry Watt.
The review found that risk management practices were largely proportionate to the deposit takers' size and complexity. While most entities are already investing in enhancing their risk management practices, the review found that more needs to be done to uplift capability to meet the Reserve Bank's expectations.
"Sound risk management requires forward looking and adaptive practices underpinned by strong governance and risk culture. This enables firms to effectively manage known and emerging risks in a changing economic environment," says Mr Watt.
All deposit takers are expected to consider the findings and recommendations outlined in the report and take appropriate actions. The Reserve Bank will be following up with firms on how they compare with the findings from the review as part of ongoing supervisory monitoring.
The review focused on three fundamental pillars of sound risk management: the Risk Management Framework, governance and oversight, and the risk management function. It covered nine deposit takers of varying sizes and business models, with the objective of strengthening sector capability by sharing good practices and identifying areas for improvement.
Insights from this review will inform the Reserve Bank's upcoming guidance supporting the risk management standard under the Deposit Takers Act 2023.
The next thematic review will focus on risk management in the general insurance sector.
More information
Thematic review on risk management
