IOPS Toolkit for Risk-based Supervision

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IOPS Toolkit for Risk-based Supervision

• Module 5 Supervisory Response

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Supervisory Response Matrix

• A fundamental aspect of risk-based supervision is
  the logical connection between the outcome a risk
  analysis undertaken and the subsequent
  supervisory action taken in response.
• May be an intervention index generated by the
  product of probability and impact, which then
  determines the level of supervisory attention.
• Supervisory response matrixes help plan
  supervisory actions and timetables, using
  resources in an efficient manner and make the
  supervisory approach more transparent.
• The number of rows and columns in the response
  matrix will depend on the preferences of the
  supervisory authority and the environment in the
  country .
• Thresholds need to be set which highlight
  suitably risky cases, but equally do not place
  too much burden on what is often a limited number
  of supervisory staff (most funds should fall into
  the lower risk categories)

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APRA PAIRS/SOARS
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TPR Risk Intervention Model
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Supervisory Response Matrix Inputs
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Supervision Matrix HFSA
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Quality Control Mechanisms

• Quality control mechanisms ensure the supervisory
  response is proportionate and consistent
• Balance needs to be struck between individual
  supervisors judgement and central control,
  weighting responsiveness of the assessment system
  with accuracy.
• Mechanisms include
• peer reviews
• sign off protocols
• benchmarking sessions
• internal comparisons and validations
• training
• Ensuring that internal control mechanisms do not
  become too cumbersome is key
• The matrix and supervisory response categories
  should be reviewed regularly / back tested
• Special attention needs to be given to
  prioritising between high risk institutions
• Oversight tools for low risk institutions
  include
• information campaigns (informing small entities
  of their regulatory requirements)
• random inspections (detecting non-compliance,
  acting as a deterrent and protecting the
  supervisors credibility)
• and / or themed inspections, including sampling

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Communication

• A risk-based approach to supervision involves
  different dynamics in terms of communication
  between the supervisory authority and the
  supervised entity
• Rather than simply notifying the entity that a
  rule has been broken, the assessment of
  supervisory judgement needs to be communicated
• The supervisory authority has to decide whether
  to disclose the results of the risk assessment to
  the institution itself and, if so, the extent to
  which details are communicated
• Conditions under which public disclosure of risk
  assessments might be appropriate must also be
  considered
• When it comes to releasing a risk-score to the
  public as a whole, a balance needs to be struck
  between clarity and dialogue between the
  authority and the institution (and publicity
  acting as a deterrent factor) and confidentiality
  (so that panic and flight from institutions is
  not induced)

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Enforcement Pyramid
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Thank You

• Presentations of practical examples to follow