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IOPS Toolkit for Risk-based Supervision

This toolkit provides guidance on the legislative background required for risk-based supervision. It covers legislative approach, discretion in interpretation and enforcement, prudential regulation, and legislative support.

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IOPS Toolkit for Risk-based Supervision

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

  2. 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

  3. Pension Supervisory Authority organisational alignment

  4. 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

  5. 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

  6. 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 warningtriggers 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

  7. Supervisory Organisation: Information Sources

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

  9. Thank You Presentations of practical examples to follow

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