Ross Jones

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IOPS Principles of Private Pension Supervision
Assessment Results

• Ross Jones President IOPS
• Deputy Chairman, Australian Prudential Regulation
  Authority
• MENA Workshop on Private Pension Supervision
• March 1-2 2011
• Amman, Jordan
• www.iopsweb.org

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IOPS Principles of Private Pension Supervision

• IOPS Principles presented at 2009 MENA workshop -
  since revised take account of standards and work
  developed by the IOPS lessons leant from the
  financial crisis
• Main changes
• No 2 Independence head of the authority should
  be appointed for a fixed term (normally 3-6
  years) with reappointment allowed
• No.3 Adequate Resources fee structure should
  be transparent
• No 4 Adequate Powers
• 4.3 flexible legal framework required to allow
  preventative action
• 4.5 well defined strategic goals and a policy for
  deciding on the mix of supervisory tools is
  required
• 4.6 sufficient gradation of powers is required
• 4.7 certain powers are required even if not used
  actively (deterrent)
• 4.8 exceptional measures should be allowed in
  times of acute financial and economic difficulty
• No. 5 Risk-based Supervision see Toolkit

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IOPS Principles of Private Pension Supervision

• No 6 Proportionality and Consistency
• 6.1 link risk assessments and supervisory action
  should be linked / avoid pro-cyclicality
• 6.2 balance costs and impact of supervisory
  action
• 6.3 follow due process
• 6.4 documents process to ensure proportionality
• 6.5 escalate response appropriately
• No 7 Consultation and Cooperation intensify
  coordination during periods of economic and
  financial difficulty
• No. 8 Confidentiality
• 8.1 internal codes of confidentiality for staff
• 8.2 limited access in IT systems
• 8.3 publish confidentiality policy
• No 9 Transparency
• 9.3 publish supervisory response framework
  (enforcement pyramid)
• 9.5 publish intervention and sanction decisions
• No. 10 Governance - supervisory authority
  needs requires governance codes, internal
  risk-management systems and performance
  measurement

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IOPS Principles of Private Pension Supervision

• METHODOLOGY
• Provides a structured framework for assessing the
  extent to which a pension supervisory authority
  complies with the letter and spirit of the
  Principles
• Can be used for external or self-assessment
• Also indicates type of evidence that may help to
  answer questions
• Compliance rated as
• - Fully implemented the IOPS Principle is
  implemented in all material respects
• - Broadly implemented the Principle is
  implemented in all but one or two material
  respects and the exceptions do not significantly
  detract from the overall opinion. It should be
  possible to say something positive about
  compliance in answer to nearly every question
• - Partly implemented while a negative answer is
  given to some questions, the responses to the
  majority of the questions are consistent with
  compliance
• - Not implemented - there are major shortcomings
  against the Principle
• - Not applicable the Principle does not apply
  due to structural, legal or institutional
  features

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IOPS Principles of Private Pension Supervision

• Principle 1 Objectives
• National laws should assign clear and explicit
  objectives to pension supervisory authorities
• Strategic objectives should be clear and public
• Responsibilities of the pensions supervisor
  should give a clear mandate and assign specific
  duties

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IOPS Principles of Private Pension Supervision

• Principle 1 Objectives Assessment questions
• Is there legislation providing for a pension
  supervisor?
• Does the legislation set out objectives?
• Are objectives public and binding?
• Does the legislation explicitly set out
  responsibilities and duties of the pension
  supervisor?
• Does the supervisor explicitly set out its
  responsibilities and duties (and are they
  consistent with legislative objectives?)

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IOPS Principles of Private Pension Supervision

• Principle 2 Independence
• Pension supervisory authorities should have
  operational independence
• Autonomy in day-today operations and decision
  making
• Funding to ensure independence
• Appointment procedures transparent
• Judicial review of supervisory actions

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IOPS Principles of Private Pension Supervision

• Principle 2 Independence Assessment questions
• Is the supervisory authority established as a
  body with operational independence?
• What type of restrictions exist on the ability of
  the government to make directions to the
  supervisory authority?
• Is there transparency in the process for
  appointing senior positions?
• Is there transparency in the process for
  terminating senior positions so that threat of
  termination cant be used to influence decisions?
• Are senior officers replaced when there is a
  change of government?
• If funded by levies on supervised entities, is
  there freedom from interference by these entities?

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IOPS Principles of Private Pension Supervision

• Principle 3 Adequate resources
• Pension supervisory authorities require adequate
  financial, human and other resources
• Able to conduct functions efficiently and
  independently
• Funding to ensure independence

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IOPS Principles of Private Pension Supervision

• Principle 3 Adequate resources Assessment
  questions
• Is the budgetary timeframe long enough (e.g. 3
  years) to provide stability in planning and
  recruitment?
• Is the budget sufficient to enable supervisory
  agency to meet its responsibilities? (very
  subjective)
• Does the agency have freedom in hiring with
  regard to staff numbers and salary?
• Are senior staff appropriately qualified?

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IOPS Principles of Private Pension Supervision

• Principle 4 Adequate powers
• Pension supervisory authorities should be
  endowed with the necessary investigative and
  enforcement powers to fulfil their functions and
  achieve their objectives
• Powers appropriate to the system being supervised
• Powers appropriate to the manner of supervision
  e.g. appropriate investigatory and enforcement
  powers

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IOPS Principles of Private Pension Supervision

• Principle 4 Adequate powers Assessment
  questions
• Are the supervisors powers clearly established
  by its governing legislation?
• Can the supervisor gain access to the information
  it needs?
• Is there a licensing or registration process that
  enables the supervisory agency to obtain relevant
  information and to reject/amend/revoke the
  license/registration in the case of serious
  non-compliance?
• Can the supervisor enforce legislation relating
  to funding/capital adequacy, fitness and
  propriety?
• Have there been any difficulties in using
  available powers?

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IOPS Principles of Private Pension Supervision

• Principle 5 Risk orientation
• Pension supervision should seek to mitigate the
  greatest potential risks to the pension system
• Objectives of supervision should be risk-based
• Allocate supervisory resources to highest risk
  areas
• Pro-active approach to avoid problems before they
  occur

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IOPS Principles of Private Pension Supervision

• Principle 5 Risk orientation Assessment
  questions
• Are the supervisory authoritys objectives risk
  based rather than focusing on compliance?
• Are resources of the authority allocated to the
  highest risk areas?
• Do the supervisors consider both the probability
  and likely impact of potential risks?
• Does the supervisor assess risks for each entity
  under supervision (for example by a risk scoring
  model)

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IOPS Principles of Private Pension Supervision

• Principle 6 Proportionality and consistency
• Pension supervisory authorities should ensure
  that investigatory and enforcement requirements
  are proportional to the risks being mitigated and
  that their actions are consistent
• Important to have the appropriate range of legal
  powers and tools
• Similar cases dealt in similar manner

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IOPS Principles of Private Pension Supervision

• Principle 6 Proportionality and consistency
  Assessment questions
• Can the supervisory authority vary its activities
  according to the magnitude of risks being
  addressed?
• Does the supervisory have procedures for helping
  the choice of a proportionate response, such as
  an enforcement pyramid?
• Does the supervisory allow entities appropriate
  flexibility in deciding how to comply with
  legislation?
• Are there processes in place to ensure
  consistency between actions where circumstances
  are similar?

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IOPS Principles of Private Pension Supervision

• Principle 7 Consultation and cooperation
• Pension supervisory authorities should consult
  with the bodies they are overseeing and cooperate
  with other supervisory authorities
• Industry consultation assists to get buy-in
• Information exchange with co-regulators at home
  and under cross-border arrangements promotes
  efficiency and supports preventative measures

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IOPS Principles of Private Pension Supervision

• Principle 7 Consultation and cooperation
  Assessment questions
• Does the supervisory authority consult with the
  pensions industry when determining strategic
  supervisory approaches?
• Is the supervisory authority empowered to
  exchange information with equivalent oversees
  authorities, subject to appropriate requirements?

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IOPS Principles of Private Pension Supervision

• Principle 8 Confidentiality
• Pension supervisory authorities should treat
  confidential information appropriately
• Only release if permitted by law
• If in doubt, check first
• Principle extends down the line

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IOPS Principles of Private Pension Supervision

• Principle 8 Confidentiality Assessment
  questions
• Does the supervisory authority have a
  confidentiality policy which sets out the
  authoritys procedures to prevent inappropriate
  disclosure of non public information?
• Are there mechanisms to prevent disclosure of
  confidential information by staff, including
  after they have left the supervisory authority?

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IOPS Principles of Private Pension Supervision

• Principle 9 Transparency
• Pension supervisory authorities should conduct
  their operations in a transparent manner
• Adopts clear, transparent and consistent
  processes
• Regularly reports on policy and performance
• Subject to external review
• Publishes industry information

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IOPS Principles of Private Pension Supervision

• Principle 9 Transparency Assessment questions
• Does the supervisory authority publish its rules
  and procedures?
• Is the supervisory authority subject to
  appropriate audit and reporting requirements
  (that do not compromise its independence)?
• Does the supervisory authority publish an Annual
  Report explaining how it has (or has not) met its
  objectives?
• Does the supervisory authority explain to
  individual supervised entities why it has taken
  particular action?

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IOPS Principles of Private Pension Supervision

• Principle 10 Governance
• The supervisory authority should adhere to its
  own governance code and should be accountable
• Controls, checks and balances
• Code of conduct
• Decisions are reviewable
• Accountable to e.g. Parliament, members and
  beneficiaries

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IOPS Principles of Private Pension Supervision

• Principle 10 Governance Assessment questions
• Does the supervisory authority have appropriate
  codified procedures for internal governance, and
  is compliance with these, monitored and enforced?
• Is there a code of conduct for all staff
  regarding gifts, hospitality etc and declaring
  conflicts of interest?
• Is there independent review within the agency of
  decisions which have significant implications for
  the supervised entity?
• Is there an appeals process against decisions?
• Does the supervisory agency measure its
  performance against objectives and provide
  external stakeholders with the results?

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IOPS Principles of Private Pension Supervision

• Self-Assessment Results

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IOPS Principles of Private Pension Supervision

• Recommendations
• To improve compliance with the IOPS Principles,
  pensions supervisory authorities may consider
• Embedding strategic objectives in legislation,
  make these more risk-orientated, and publish
  performance assessment vs. them
• Making appointment of head of authority and
  board transparent and fair (requiring suitable
  professional experience)
• Striving for more autonomy in the setting of
  supervisory budgets (including longer time
  periods)
• Introducing indemnity for the authoritys staff
• Striving for more independence and flexibility in
  terms of staff policy
• Using the introduction of risk-based supervision
  to review and redefine required supervisory
  powers.
• Developing a formal framework for risk-based
  supervision

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IOPS Principles of Private Pension Supervision

• Recommendations
• Developing procedures for articulating
  supervisory responses (e.g. enforcement pyramid).
  
• Intensifying dialogue with supervised entities to
  help aid their understanding of supervisory
  expectations, procedures and actions,
• Improving international dialogue with supervisory
  peers.
• Drafting manuals for the treatment of
  confidential information
• Undertake cost-benefit analysis of supervisory
  actions.
• Strengthening the governance requirements of the
  supervisory authority itself (introducing codes
  of conduct, reviews of supervisory interventions
  etc.)