Risk based supervision
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Risk-based Supervision. Solange Berstein Chair IOPS Technical Committee Superintendent Pension Supervisor Chile. Agenda. Motivation Comparing Two Supervisory Models Working Plan Defining the Objective Supervision Process Knowledge Assessment Follow up Where are we now?.

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Risk based supervision

Risk-based Supervision

Solange Berstein

Chair IOPS Technical Committee

Superintendent

Pension Supervisor

Chile


Agenda

Agenda

  • Motivation

  • Comparing Two Supervisory Models

  • Working Plan

  • Defining the Objective

  • Supervision Process

    • Knowledge

    • Assessment

    • Follow up

  • Where are we now?


Rbs main objectives

RBS Main Objectives

EXPECTED OUTCOMES

  • Preventive approach

  • Encourage prudential administration of supervised entities

  • Focus on what is important and not the urgent

  • Learning by doing of supervisory activities


Rbs main benefits

RBS Main Benefits

EXPECTED BENEFITS

  • Better visibility of the areas with greatest risks

  • More effective control measures and supervisory activities

  • Reduce claims from members

  • Alignment with international standards of regulation

  • Disclosure and transparency to the market


Main changes comparing two supervisory models

Main Changes: Comparing Two Supervisory Models


Working plan

Working Plan

2005

2006

2007

2008

2009

2010

  • Get familiar with RBS

  • Diagnosis

  • Design

  • Development of framework legislation

  • Revision of methodology and improvement of supervision guides

  • Staff training (which included a visit to APRA)

  • Pilot implementation


Defining the objetive

Defining the objetive

  • To build the model it is necessary to have clear the objective

  • For the Superintendence of Pensions in Chile the main focus for Supervision was defined to be:

    • Fiduciary Responsability of Managers


Risk based supervision

Organization Structure of Supervisor

COMMITTEE OF DIRECTORS

REGULATED SYSTEMS

SUPERVIZED ENTITIES

SUPERINTENDENT

INTENDENT

OF SUPERVISION

LEGAL DIVISION

INTENDENT OF

REGULATION

LEGAL CONTROL

FINALCIAL

DIVISION

BENEFITS

DIVISION

CONTROL

DIVISION

MEDICAL

DIVISION

STUDIES

DIVISION

CUSTOMERS

SERVICE

DIVISION

REGULAION

DIVISION

IT AND

ADMINISTRATION


Risk based supervision

Organization Structure of Supervisor

REGULATED SYSTEMS

SUPERVIZED ENTITIES

SUPERINTENDENT

SUPERVISORY COMMITTEE

INTENDENT

OF SUPERVISION

LEGAL DIVISION

INTENDENT OF

REGULATION

LEGAL CONTROL

FINALCIAL

DIVISION

BENEFITS

DIVISION

CONTROL

DIVISION

MEDICAL

DIVISION

STUDIES

DIVISION

CUSTOMERS

SERVICE

DIVISION

REGULAION

DIVISION

IT AND

ADMINISTRATION


Risk based supervision

Organization Structure of Supervisor

SANCTIONS COMMITTEE

REGULATED SYSTEMS

SUPERVIZED ENTITIES

SUPERINTENDENT

INTENDENT

OF SUPERVISION

LEGAL DIVISION

INTENDENT OF

REGULATION

LEGAL CONTROL

FINALCIAL

DIVISION

BENEFITS

DIVISION

CONTROL

DIVISION

MEDICAL

DIVISION

STUDIES

DIVISION

CUSTOMERS

SERVICE

DIVISION

REGULAION

DIVISION

IT AND

ADMINISTRATION


Supervisory process

  • Directors Committee

  • Supervisory Committee

  • Intendent of Supervision

  • Financial, Control and Benefits Divisions

  • RBS coordinator

  • Regulation Division, Studies Division and Customers Service Division

Supervisory Process

  • Supervisory Committee

  • Financial, Control and Benefits Divisions

1. Knowledge

6. Follow Up

  • Supervisory Committee

  • Intendent of Supervision

  • Financial, Control and Benefits Divisions

5. Comunication

2. Planification

  • Directors Committee

  • Legal Division

3. Assessment

4. Documentation

and Actions

4.

  • Intendent of Supervision

  • Financial, Control and Benefits Divisions

  • Supervisory Committee

  • Sanctions Committee

  • Legal Division


Knowledge

Knowledge

  • The main activities and elements required are:

    • Information gathering;

    • Information analysis;

    • On-site visits;

    • Integrated information system.


Planification

Planification

Risk Matrix

Regular Supervision

Preventive Inspection

ComplianceSupervision


Assessment significance weights

Assessment: Significance Weights


Assessment industry risk factors

Assessment: Industry Risk Factors


Assessment global scoring

Assessment: Global Scoring

  • A global scoring is assigned to every supervised entity taking into consideration the inherent risk of each area, sub-area within the entity and the quality of controls for each inherent risk.

    • So, the global scoring combines the significance weights and the assessment of control quality.

  • The global scoring takes values between 1 and 5.

    • A score equal to 1 → lowest net risk

    • A score equal to 5 → highest net risk

  • The risk matrix looks at:

    • The risk level

    • Controls’ quality

    • Global scoring

    • Change in evaluation over time


Communication

Communication

  • A summary document is given to the entity with the opinion of the Supervior:

    • Strengths and Weaknessess

    • Global Scoring

    • Recommendations with priorities

  • The Superintendent and intendent of supervision meet with the board

  • When there is a sanction this is also communicated to the entity


Follow up

Follow up

  • An end-product of the assessment efforts

  • Main activities, varying intensity according to necessity:

    • Monitoring and general follow-up

    • On-site inspections focused on specific topics

    • Action Plans with the objective of improve weak points

    • Integral on-site inspections according to a predefined supervision plan

    • Periodic meetings with main executives and board of directors

    • Intervention in specified cases of insolvency.


Challenges throughout the process

Challenges throughout the process

  • Building the model: important to have clear which is the goal

  • Getting supervisors familiar and to finally be owners of the model

  • Make the industry accept and acknowledge the importance of the new approach of supervision

  • Changes on the structural organization of the supervisory agency

  • Implementation in parallel to the traditional activities of supervision

  • Integrating all the activity of the Supervisory entity within the RBS approach


Where are we now

Where are we now?

  • Risks of five of the six pension fund managers have been assessed.

  • Risks for the unemployment insurance managers were also assessed.

  • The model for the public pension provider is being build.

  • The superintendence is doing the following up of the recommendations that came out from the assessments.

  • A number of areas of each pension fund were reviewed with a preventive approach

  • The risk matrix is being updated with the information from the follow up process and the preventive evaluations by area


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