IOPS Toolkit for Risk-based Supervision

Module 3: Risk Identification

RBS Process

Risk FocusDriven 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

Supervisory Objectives and Risk Focus

RBS Process

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

Risk Factors – Superintendencia Chile

Risk Factors – De Nederlandsche Bank

RBS Process

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

Risk Indicators - RBA Kenya

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

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

Thank You

Presentations of practical examples to follow