Choosing Supervisory Tools Solange Berstein Chair IOPS Technical Committee Superintendent Pension Supervisor Chile

IOPS Guidelines Guideline 1: Goals of intervention, enforcement and sanctions Guideline 2: Intervention, enforcement and sanction powers Guideline 3: Decision making process Guideline 4: Consistency of decisions Guideline 5: Proportionality and escalation of response Guideline 9: Information disclosure Guidelines for Supervisory Intervention, Sanctions and Enforcement (IOPS 2009a).

Goals of Intervention and Sanctions The pension supervisory authorities should have clear and well defined strategic supervisory goals for the use of intervention, enforcement and sanction powers Each supervisory action needs to have a goal having in mind that in the case of the SP the main objective of the Supervisor is to look after the fiduciary responsibility of managers which leads to protect members.

Intervention Powers The Superintendence has the power to appoint an Inspector to protect the safety of the Pension Funds of the AFP. The appointment of the Inspector requires a reasonable resolution issued by the Superintendence.  Characteristics of the Inspector: Employee of the Superintendence; Appointed by no more than six months, extended by one period of six months  Some causes to appoint an Inspector: Reiterative material sanctions or fines incurred by AFPs; not to comply with the rules or instructions of the Superintendence; vacancy of the most members of the AFP’s board of directors; filing of bankruptcy or declaration of bankruptcy of an AFP; deficit of legal reserve or minimum net worth.  Powers of the Inspector: Authorize all operation activities of the AFP; suspend any decision of the board of director or management that danger the safety of the Pension Funds

Sanction Powers The Superintendence has the power to sanction an AFP if incurred in any infraction of the regulation. According to Chilean Administrative Law is requirement to sanction an AFP that Superintendence carries an administrative proceeding.  Phases of the administrative proceeding: Formulation of charges Responses to charges (discharges) Burden of pleading Issuance of the final resolution (sanction or dismissal of the infraction)  Types of sanctions: Administrative admonition Censure Fines Revocation of the license of the AFP Fines and revocation of the license of the AFP could be reconsidered through a claim files with the Appeal Court.

Decision Making Process Identifying risks  Key indicators by process  Using rules  Databases analysis  Data on inquires and complains captured by the supervisor  Public news  In-situ reviews Gathering data and supervising  Risk Based Supervision Order (ORFIR)  Mandatory information provided by the institutions  Forms and files delivered by the entities  Interviews to key managers  In-situ operational information gathering

Decision Making Process Analyzing and evaluating the data  Supervision Guides, criteria and best practices  Supervision Committees  Updated risk matrix by institution  Ad-hoc analytical applications Reporting issues and concerns and following up improvements programs  Risk Evaluation Summary (RER), including the institution main strengths and weaknesses by risk factor and the supervisor concerns  Meetings with each Board of Directors and key managers to share RER and ask for improvement plans  Supervision planning and following improving programs based on each risk matrix and those plans

Consistency and Proportionality Supervision and Penalization Committee  It takes place monthly  To review every case and decide to charge and/or punish the involved institution  Integrated by the Superintendent, Supervision Intendant, Head of Legal Department, a lawyer secretary and the responsible supervision staff  A pre established sanction framework is used to set up the fines, based on the kind of problem, its severity and rate of recurrence  Every session is documented

SP Global Score by Entity

Supervisory stance according to global scoring First level Normal Second level Normal with minor concerns Third level Vigilance Fourth level Require Urgent Improvements Fifth level Require Intervention

SP Supervisory Stance by Entity

Information Disclosure A significant amount of information on RBS as well as compliance based supervision is published by the Superintendency on the web site. First meeting with key managers or formal communication to announce each supervision actions, goals and scope and to assure collaboration Risk Based Evaluation Summary (RER) is shared with the key managers and Board of Directors for comments and feedback When there is a concern for the supervisor, a formal, structured, documented, timely process is triggered Warnings are timely communicated to the entities Censures and fines become public on the web

Choosing Supervisory Tools Solange Berstein Chair IOPS Technical Committee Superintendent Pension Supervisor Chile