Preparing Supervisory Authority and Pension Industry for Risk-based Supervision

1. Preparing Supervisory Authority and Pension Industry for Risk-based Supervision Charles Machira, Manager, Supervision Retirement Benefits Authority, Kenya

2. 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

3. Kenya Pension System State Old Age Pension on pilot program

5. REGULATION MATRIX Fund Manager Custodian Scheme/Trustees Scheme Administrator Others (Actuary, Auditor, Legal advisors, etc.)

6. Retirement Industry Assets Note: Excluding NSSF

7. Regulatory Structure

8. RETIREMENT BENEFITS AUTHORITY (RBA) • Created in 2000 by an Act of Parliament • 50 Staff • 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 Statutory Objectives

9. 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

10. FRAMEWORK DEVELOPMENT Preparing the Supervisor for RBS 2004 WB Institute facilitates training on Pension Supervision effectively introducing RBS 2005 Framework Introduction/ Consultation-Initial draft 2006 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

11. FRAMEWORK DEVELOPMENT Preparing the Supervisor for RBS 2009 Consultant Trains staff on RBS model Consultant submits final report including; • Pre-requisites for RBS • Procedure Manual • Implementation Manual • Training Syllabus for staff and Industry • 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 guides Benchmarking methodology

12. 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

13. 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.

14. Thank You Asante www.rba.go.ke