Preparing Supervisory Authority and Pension Industry for Risk-based

SupervisionCharles Machira, Manager, SupervisionRetirement Benefits Authority, Kenya

Contents

• Retirement Benefits Industry in Kenya• Risk Based Supervision in RBA Kenya• Preparing the Supervisor and the Pensions

Industry• Challenges in Implementing Risk Based

Supervision Model in Kenya

State Old Age Pension on pilot program

Kenya Pension System

Scheme Administrator

Scheme/Trustees

Others (Actuary, Auditor, Legal advisors, etc.)

REGULATION MATRIX

Retirement Industry Assets

Note: Excluding NSSF

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

June 02 June 03 June 04 June 05 June 06 June 07 June 08 Dec 08 June 09 Dec 09 Jun 10

KShs

millions

Other

Guaranteed Funds

Immovable Property

Offshore

Unquoted Equties

Quoted Equities

Government Securities

Fixed Income

Fixed Deposit

Cash

Regulatory Structure

RETIREMENT BENEFITS AUTHORITY (RBA)

• Regulate and supervise establishment and management of retirement benefits schemes.

• Protect the interest of members and sponsors of retirement benefits schemes.

• Promote the development of the retirement benefits industry.

• Advise the Minister for Finance on the national policy to be followed with regard

to the retirement benefits industry.

• Implement all government policies relating to the retirement benefits industry

Created in 2000 by an Act of Parliament

50 Staff

StatutoryObjectives

Why did RBA adopt RBS?

• Allows systematic assessment within a formalized framework both at the time of examination and in between through off-site monitoring

• Allows Identification of schemes and areas within schemes where problems exist or are likely to emerge

• Cost effective use of resources through greater emphasis on risk

• Enables prompt intervention and timely action• RBS allows supervisor to

• spend the minimal amount of effort on schemes in satisfactory status • concentrate on schemes requiring more attention

• Reduces regulatory burden• Continuous monitoring

FRAMEWORK DEVELOPMENT Preparing the Supervisor for RBS

2004 WB Institute facilitates training on Pension Supervision effectively introducing RBS

2005 Framework Introduction/ Consultation-Initial draft2006 OECD Consultant Promontory Financial Group Australasia,

reviews draft, recommended; • Legislative Changes to allow regulator issue Prudential Standards• Attachment of RBA Employees to Jurisdictions with operational RBS Model• RBA to Develop detailed manual and procedures for RBS

2007 Final report on RBS case study for Kenya 2008 RBA Staff undergo attachments in Australia, SA & UK

RBA appoints consultant to facilitate Implementation of RBS approach

FRAMEWORK DEVELOPMENT Preparing the Supervisor for RBS

2009 Consultant Trains staff on RBS modelConsultant submits final report including;

• Pre-requisites for RBS• Procedure Manual• Implementation Manual• Training Syllabus for staff and Industry

2010 Law amended to give RBA powers to issue statutory guidelines

RBA commences RBS for pilot 60 schemes (5 % of Schemes). RBA Launches RBS Model to the Industry

On-going

Development of supervisory guidesBenchmarking methodology

Preparing the Industry for RBS

• Public announcements of shift to RBS since 2007• Law amended in June 2009 to require all schemes to adopt

mark to market time weighted performance reporting• Issue of Practice note on RBS in June 2010• Stakeholder Workshop in June 2010• Issue of interrogatories to all schemes:

Governance self-assessment DC or DB interrogatory Practice note on Income draw Statutory guidance note on risk based supervision

• Training of scheme administrators commenced in August 2010

Implementation Challenges

• Change from compliance based approach to RBS requires change in mind-set

• Educating scheme trustees and service providers on the new system and enabling them to complete interrogatories satisfactorily.

• Supervisory Skills and Readiness• Industry Skills and Readiness• Difficulty in identifying and financing a suitable IT system in

line with the new system as well as challenge of shifting industry towards electronic filling of returns in suitable format.

Thank You

Asante

www.rba.go.ke