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IOPS Toolkit for Risk-based Supervision

This module focuses on risk identification in the risk-based supervision process, considering factors such as market risk, credit risk, liquidity risk, and more. It also explores qualitative and quantitative risk indicators and the importance of systemic risk assessment.

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IOPS Toolkit for Risk-based Supervision

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  1. IOPS Toolkit for Risk-based Supervision Module 3: Risk Identification

  2. RBS Process

  3. Risk Focus Driven by: • Resources • Objectives • Nature of Pension System • DB funds – focus on funding + solvency, as well as trustee oversight ability • DC funds – focus on investment risk, costs and operational risks. The degree of competition also dictates the focus within DC systems • Risk appetite

  4. Supervisory Objectives and Risk Focus

  5. RBS Process

  6. Risk Factors • Market risk • Credit risk • Liquidity risk • Mismatch risk • Actuarial risk • Agency risk • Operational risk • IT risk • External & Strategic risk • Legal & Regulatory risk • Contagion & Integrity risk

  7. Risk Factors – Superintendencia Chile

  8. Risk Factors – De Nederlandsche Bank

  9. RBS Process

  10. Risk Indicators • Qualitative and Quantitative • Quantitative • DB – funding + solvency tests (also for DC with guarantees) • DC – VaR + replacement rate targets • Quantitative for non-financial risks • DB - number of complicating features, such as early retirement benefits, indexation etc. • DC - large range of investment options; central fund for allocating all investment earnings on a non-transparent, smoothing basis; level of outsourcing • But qualitative indicators involving judgement also required

  11. Risk Indicators - RBA Kenya

  12. Systemic Risk • Risks can be identified and assessed on two levels: • Micro – ‘bottom up’ – risks at the level of individual supervised entities • Macro – ‘top down’ – risk on a sector/industry or thematic basis • Systemic risk particularly important • When overseeing large number of fund • In developing markets with new pension systems • At particular times (e.g. extreme market volatility / financial crisis) • Build into overall risk analysis • Within individual risk assessments / or as separate layer of analysis • By pre-populating scores for these risks/ or leaving them to the individual supervisor’s judgement

  13. Systemic Risk – HFSA Sources of Information • Findings of institution assessment • Monitoring information and messages • Trends revealed in customer complaints • Consumer protection (monitoring of product and service advertisements, information from interest-protection organisations) • Market supervision (market data) • Signals from macroeconomic and sector analysts (monitoring and analysis of risk priorities, domestic and international trends and phenomena) • Information from contact persons of the institutions with below average impact rating • Information from trade associations • Information from supervised institutions (e.g. requests for opinions) • Information received from law enforcement and licensing • Information received from domestic and foreign partner authorities • Information forwarded by domestic and international working groups • Other sources

  14. Thank You Presentations of practical examples to follow

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