IOPS Toolkit for Risk-based Supervision Module 1: Preparation for Risk-based Supervision

Legislative Background Legislative Approach Legislative environment for RBS requires more flexibility:  Discretion in the interpretation of legislation  Discretion in the enforcement of legislation  Prudential regulation – e.g. prudent person rule Legislative Support The following specific legislation should in place:  Supervisory objectives  Supervisory powers Independence Fit + proper test Issue guidance License Collect information Enforcement Risk-based legislation

Pension Supervisory Authority organisational alignment

Supervisory Organisation: Skills and Culture Skills and culture - training provided for all staff covering the philosophy of risk-based supervision as well as process. It should be ongoing to understand how the approach and models are adapting with industry developments. Number of staff - rearrange existing staff according to experience carefully, and hire or second experts from ‘risk aware’ sectors. Level of centralisation – balance between supervisor responsibility and central oversight

Supervisory Organisation: Structure Horizontal -analysts oversee a portfolio of pension funds Vertical -analyst specialize in one function, such as licensing or registration of new funds/ data gathering and statistical analysis Hybrid – a mix of the two approaches

Supervisory Organisation: RBS Information Information on what is going right as well as wrong Qualitative information on how entities are complying with rules as well as quantitative information showing that they are doing so Rather than just point in time information, trend data is required to spot developing problems Early warning triggers and stress tests to try and detect potential problems Probability of risks materialising Impact of negative events occurring Systemic information Information from other sources than the supervised entity Performance measures for supervisory authority Do not need detailed information on every compliance failure

Supervisory Organisation: Information Sources

Industry Skills and Readiness Communication and Guidance Pension Fund Risk Management Systems Quality of Supporting Professionals Capital Market Developments

Thank You Presentations of practical examples to follow