1. Risk-based Supervision
Solange Berstein
Chair IOPS Technical Committee
Superintendent
Pension Supervisor
Chile

2. Agenda Motivation Comparing Two Supervisory Models Working Plan
Defining the Objective
Supervision Process
Knowledge
Assessment
Follow up
Where are we now?

3. RBS Main Objectives EXPECTED OUTCOMES Preventive approach
Encourage prudential administration of supervised entities
Focus on what is important and not the urgent
Learning by doing of supervisory activities

4. RBS Main Benefits EXPECTED BENEFITS
Better visibility of the areas with greatest risks
More effective control measures and supervisory activities
Reduce claims from members
Alignment with international standards of regulation
Disclosure and transparency to the market

5. Main Changes: Comparing Two Supervisory Models
Supervision by Compliance
Risk Based Supervision
Focus
Reactive
Preventive
Priorities
All subjects
Priority to most critical and poorly evaluated areas
Resorces allocation
Less flexibility
More flexibility
Transparency
Lack of knowledge of the regulator’s concerns
Make explicit the mayor concerns
Supervisors
Orientation to verify compliance with norms
Enchanced analytical capacity judgment call is required

6. Working Plan 2005 2006 2007 2008 2009 2010 Get familiar with RBS
Diagnosis
2007
Design
2008
Development of framework legislation
2009
Revision of methodology and improvement of supervision guides
Staff training (which included a visit to APRA)
2010
Pilot implementation

7. Defining the objetive
To build the model it is necessary to have clear the objective
For the Superintendence of Pensions in Chile the main focus for Supervision was defined to be:
Fiduciary Responsability of Managers

8. COMMITTEE OF DIRECTORS
Organization Structure of Supervisor
COMMITTEE OF DIRECTORS
REGULATED SYSTEMS
SUPERVIZED ENTITIES
SUPERINTENDENT
INTENDENT
OF SUPERVISION
LEGAL DIVISION
INTENDENT OF
REGULATION
LEGAL CONTROL
FINALCIAL
DIVISION
BENEFITS
DIVISION
CONTROL
DIVISION
MEDICAL
DIVISION
STUDIES
DIVISION
CUSTOMERS
SERVICE
DIVISION
REGULAION
DIVISION
IT AND
ADMINISTRATION

9. SUPERVISORY COMMITTEE
Organization Structure of Supervisor
REGULATED SYSTEMS
SUPERVIZED ENTITIES
SUPERINTENDENT
SUPERVISORY COMMITTEE
INTENDENT
OF SUPERVISION
LEGAL DIVISION
INTENDENT OF
REGULATION
LEGAL CONTROL
FINALCIAL
DIVISION
BENEFITS
DIVISION
CONTROL
DIVISION
MEDICAL
DIVISION
STUDIES
DIVISION
CUSTOMERS
SERVICE
DIVISION
REGULAION
DIVISION
IT AND
ADMINISTRATION

10. Organization Structure of Supervisor
SANCTIONS COMMITTEE
REGULATED SYSTEMS
SUPERVIZED ENTITIES
SUPERINTENDENT
INTENDENT
OF SUPERVISION
LEGAL DIVISION
INTENDENT OF
REGULATION
LEGAL CONTROL
FINALCIAL
DIVISION
BENEFITS
DIVISION
CONTROL
DIVISION
MEDICAL
DIVISION
STUDIES
DIVISION
CUSTOMERS
SERVICE
DIVISION
REGULAION
DIVISION
IT AND
ADMINISTRATION

11. Supervisory Process 1. Knowledge 6. Follow Up 5. Comunication
Directors Committee
Supervisory Committee
Intendent of Supervision
Financial, Control and Benefits Divisions
RBS coordinator
Regulation Division, Studies Division and Customers Service Division
Supervisory Committee
Financial, Control and Benefits Divisions
6. Follow Up
1. Knowledge
5. Comunication
2. Planification
Supervisory Committee
Intendent of Supervision
Financial, Control and Benefits Divisions
Directors Committee
Legal Division
4. Documentation
and Actions
3. Assessment 4.
Intendent of Supervision
Financial, Control and Benefits Divisions
Supervisory Committee
Sanctions Committee
Legal Division

12. Knowledge The main activities and elements required are:
Information gathering;
Information analysis;
On-site visits;
Integrated information system.

13. Planification Risk Matrix Regular Supervision Preventive Inspection
Compliance Supervision

14. Assessment: Significance Weights

15. Assessment: Industry Risk Factors

16. Assessment: Global Scoring
A global scoring is assigned to every supervised entity taking into consideration the inherent risk of each area, sub-area within the entity and the quality of controls for each inherent risk.
So, the global scoring combines the significance weights and the assessment of control quality.
The global scoring takes values between 1 and 5.
A score equal to 1 → lowest net risk
A score equal to 5 → highest net risk
The risk matrix looks at:
The risk level
Controls’ quality
Global scoring
Change in evaluation over time

17. Communication
A summary document is given to the entity with the opinion of the Supervior:
Strengths and Weaknessess
Global Scoring
Recommendations with priorities
The Superintendent and intendent of supervision meet with the board
When there is a sanction this is also communicated to the entity

18. Follow up An end-product of the assessment efforts
Main activities, varying intensity according to necessity:
Monitoring and general follow-up
On-site inspections focused on specific topics
Action Plans with the objective of improve weak points
Integral on-site inspections according to a predefined supervision plan
Periodic meetings with main executives and board of directors
Intervention in specified cases of insolvency.

19. Challenges throughout the process
Building the model: important to have clear which is the goal
Getting supervisors familiar and to finally be owners of the model
Make the industry accept and acknowledge the importance of the new approach of supervision
Changes on the structural organization of the supervisory agency
Implementation in parallel to the traditional activities of supervision
Integrating all the activity of the Supervisory entity within the RBS approach

20. Where are we now?
Risks of five of the six pension fund managers have been assessed.
Risks for the unemployment insurance managers were also assessed.
The model for the public pension provider is being build.
The superintendence is doing the following up of the recommendations that came out from the assessments.
A number of areas of each pension fund were reviewed with a preventive approach
The risk matrix is being updated with the information from the follow up process and the preventive evaluations by area