Third-Party Risk Management Practices in Australia to Comply with APRA
Apr 15, 2025
By SkyBlackBox
As Australian organisations increasingly rely on outsourced services, managing third-party risk is no longer just a best practice, it is a regulatory requirement. The Australian Prudential Regulation Authority (APRA) has placed growing emphasis on operational resilience, particularly regarding third-party service providers. Whether you operate in banking, insurance, or superannuation, APRA’s expectations require proactive and well-structured Third-Party Risk Management (TPRM) frameworks that support security, continuity, and compliance. Importantly, failure to meet these expectations does not only increase operational and reputational risk. In the event of a third-party data breach, if the organisation is found non-compliant with APRA standards—especially CPS 234—this can also affect your cybersecurity insurance coverage. Many policies require that reasonable steps are taken to assess and monitor vendor risks. Without documented controls in place, claims may be denied. This further underlines the need for a TPRM approach that satisfies both regulatory obligations and insurer expectations.
Understanding APRA’s Regulatory Landscape
APRA has issued several prudential standards that directly relate to third-party risk. These include: CPS 231 – Outsourcing: Requires entities to identify material outsourcing arrangements, conduct thorough due diligence, and enter into formal agreements that define responsibilities, performance standards, audit rights, and exit provisions CPS 234 – Information Security: Mandates that service providers maintain information security capabilities equal to or better than those of the regulated entity CPS 230 – Operational Risk Management (commencing July 2025): Will introduce enhanced requirements for managing operational risk and service provider arrangements These standards form a core part of APRA's approach to strengthening operational resilience across regulated industries.
Why Third-Party Risk Management Is Critical
Outsourcing functions such as IT services, cloud hosting, and data processing can improve efficiency and innovation, but also introduces exposure to external vulnerabilities. Key risks include: Cybersecurity incidents resulting from weak vendor controls Service disruptions that impact operations Data breaches that compromise privacy and trust Regulatory non-compliance that could lead to fines or supervisory intervention Insurance claim denial due to insufficient risk oversight or non-compliance with policy conditions Of particular concern are "material service providers" whose failure could significantly impact an organisation’s operations or financial soundness.
Best Practice Approach to APRA-Compliant Third-Party Risk Management
Perform Comprehensive Due Diligence Before engaging a third party, assess their financial stability, security practices, compliance history, and operational maturity. Third-party certifications (such as ISO 27001 or SOC 2), security documentation, and independent audits help establish a reliable baseline. Platforms that support automated assessments and document validation can increase consistency and efficiency.
Classify Vendors According to Risk Not all vendors present equal risk. Risk-based tiering allows organisations to focus greater scrutiny on high-impact and critical vendors. This tiering should consider the sensitivity of data accessed, service criticality, and the vendor’s operational control environment. Tools that allow flexible tagging and automated risk scoring can support this process.
Ensure Strong Contractual Safeguards Contracts should include provisions that cover: Information security obligations Breach notification requirements Right to audit Business continuity and disaster recovery plans Termination and handover clauses Maintaining a central repository of vendor agreements and aligning them with internal risk criteria can improve oversight and compliance with CPS 231 and 234.
Implement Continuous Monitoring
Vendor risks can change over time. Ongoing monitoring is essential to maintain visibility into third-party performance, control effectiveness, and emerging threats. Monitoring can include regular assessments, performance reviews, and alerts on major changes or incidents.
Capabilities such as automated reviews, real-time dashboards, and compliance alerts can significantly enhance ongoing assurance.
Maintain Real-Time Visibility of Third-Party Risk
CPS 234 highlights the importance of visibility into information assets and related risks, including those managed externally. Organisations should ensure they can track which vendors have access to critical systems or data, and assess how those risks are managed.
Centralised risk dashboards that provide real-time updates on vendor exposure and security posture are valuable in maintaining oversight.
Detect Security Issues Early
Timely identification of threats is key to minimising the impact of third-party incidents. Monitoring for vendor breaches, leaked credentials, or non-compliant responses can help flag problems before they escalate.
Some tools include breach detection features and can cross-check assessment answers for inconsistencies that indicate elevated risk.
Align Incident Response with Third Parties
Under CPS 234, regulated entities must ensure that their service providers can respond effectively to security incidents. Incident response plans should be shared, aligned, and regularly tested with key vendors to ensure readiness in the event of a breach or outage.
Pre-built templates, secure communications, and collaboration features can streamline these joint activities.
Document and Report for Audit and Oversight
CISOs and risk leaders must be able to demonstrate to APRA, internal audit, or the board that they have active oversight of third-party arrangements. Maintaining complete records of assessments, decisions, reviews, and risk changes is essential.
Audit-ready reporting capabilities and exportable logs make it easier to provide evidence of compliance during regulatory reviews.
Prepare Now for CPS 230
With CPS 230 coming into effect in July 2025, it is important to assess your current operational risk framework and third-party governance practices. The new standard will reinforce many existing expectations while introducing tighter integration between risk, compliance, and service provider management. Using tools that support CPS 231 and 234 now will provide a strong foundation for compliance with CPS 230.
How SkyBlackBox Supports Best Practice TPRM
SkyBlackBox is a vendor risk management platform developed to support regulated organisations in meeting Australian compliance requirements and broader risk expectations. Its capabilities include: Centralised vendor tracking Real-time risk dashboards Automated risk assessments and reminders Breach detection and dark web monitoring Contract alignment tools Audit trail and exportable reporting These features assist in achieving alignment with APRA standards while supporting operational efficiency and risk governance.
Final Thoughts
Third-party risk management is no longer a niche concern, it is central to an organisation’s operational, regulatory, and financial resilience. Meeting APRA’s expectations is not just a matter of regulatory compliance—it also plays a key role in ensuring cyber insurance protection in the event of a breach. By adopting a structured, well-documented, and technology-supported approach to vendor risk, organisations are better equipped to prevent disruption, pass audits, and respond effectively under pressure.
Next Steps
Ready to take control of your third-party risk?
SkyBlackBox provides tailored capabilities that help organisations align with APRA’s CPS 231, CPS 234, and the upcoming CPS 230, while supporting compliance with cybersecurity insurance requirements. Get in touch to book a consultation or explore how the platform can support your compliance journey.