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IOPS Principles of Private Pension Supervision - OECD

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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
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                          2
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
                                                                               3
        codes, internal risk-management systems and performance measurement
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 can’t 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




                                                                    11
IOPS Principles of Private Pension Supervision

Principle 4 : Adequate powers; Assessment questions

    Are the supervisor’s 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




                                                               13
IOPS Principles of Private Pension Supervision

Principle 5 : Risk orientation; Assessment questions

    Are the supervisory authority’s 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




                                                                     15
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 authority’s 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




                                                 25
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 authority’s 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.)




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