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APRA PAIRS Model. Ross Jones Deputy Chairman, Australian Prudential Regulation Authority President of International Organisation of Pension Supervisors (IOPS) Lima, Peru 8 September 2011. Outline. Introduction Continuous supervision process Range of supervisory activities PAIRS model

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apra pairs model

APRA PAIRS Model

Ross Jones

Deputy Chairman, Australian Prudential Regulation Authority

President of International Organisation of Pension Supervisors (IOPS)

Lima, Peru

8 September 2011

outline
Outline
  • Introduction
  • Continuous supervision process
  • Range of supervisory activities
  • PAIRS model
    • Framework
    • Main risk areas for PAIRS assessment
    • Net risk and significance weights
    • Impact rating
  • SOARS model (next session)
  • Adapting PAIRS for pension funds
  • Ensuring quality and consistency
slide3

Supervision process - APRA

  • Supervision Activities
  • Prudential consultation
  • Prudential reviews
  • Targeted reviews
  • Ad hoc meetings
  • Risk Assessment
  • Offsite analysis
  • PAIRS Update
  • Supervision Strategy
  • Supervisory action plans
supervisory activities apra
Supervisory Activities - APRA
  • Prudential reviews – on-site
  • Analysis of financial and other data
  • Superannuation funds with >$50M assets, data is received on a quarterly and annual basis
  • Examination of exceptions and outliers
  • Analysis of other market and regulatory information
pairs probability impact rating system
PAIRS (Probability & Impact Rating System
  • Ratings tool used by APRA to determine the probability of failure of a regulated institution and the potential impact on the financial system of the failure.
  • Five probability rating categories: Low; Lower-Medium; Upper-Medium; High; and Extreme.
  • Four impact rating categories (based on total assets): Low < $400m; Medium - between $400m and $4.0bn; High - between $4.0bn and $40bn; Extreme - above $40bn
  • APRA assesses the likelihood of an institution’s failure based on the “inherent risk” of the institution, balanced by the “management and controls” and the “capital support” available in the absence of APRA intervention.
  • Rating is based on the accumulated knowledge from APRA’s onsite reviews and offsite analysis
slide7

Main risk areas for PAIRS assessment

PAIRS

Board

NOTE - For DC superannuation funds, the Capital components do not apply

Management

Risk Governance

Strategy & Planning

#

Liquidity Risk

# NOTE - Significant risks for superannuation funds

Operational Risk

#

Credit Risk

Mk & Investment Risk

#

NOTE – guidance manuals for supervisors on each PAIRS component

Insurance Risk

Capital - Coverage

Capital - Earnings

Capital – Access to Add

slide11

Impact rating

Size, measured by assets under management, is the sole determinant of impact

NOTE: Impact rating drives frequency of review

NOTE: Impact rating determines whether specialist risk experts join

supervision staff in review of institution

pairs soars quality and consistency
PAIRS & SOARS - quality and consistency
  • Dedicated support unit for supervisors
  • Predictive analysis tools
  • Portfolio reports and watch lists
  • Peer review and assessment
  • Reporting changes in assessment to top management in APRA
  • The combination of these four support levels and the reporting framework leads to better risk assessments and strategy setting practices in APRA and overall improvements in supervisory judgements.
consistency of scores
Consistency of Scores

Australia

  • Individual supervisor inputs scores for risk categories + mitigants and decides on weightings
  • Guided by benchmarks / reference points
  • Supervisors may have to defend their ratings at a review panel
thank you
Thank You
  • Questions?