Preparing Supervisory Authority and Pension Industry for Risk-based

SupervisionNzomo Mutuku

Manager, Research & DevelopmentRetirement 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

Kenya Pension Scheme Design

REGULATION MATRIX

Scheme Administrator

Scheme/Trustees

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

Retirement Industry Assets

Note: Excluding NSSF

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

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

KShs

millions

Other

Guaranteed Funds

Immovable Property

Offshore

Unquoted Equties

Quoted Equities

Government Securities

Fixed Income

Fixed Deposit

Cash

Retirement Industry Assets, %

Note: Excluding NSSF

4% 2% 4% 1% 1% 1% 1% 1% 13%16% 20%

21% 26% 27%11%11% 8%

23%29%

42% 45%50%

50% 41% 38% 36%36% 38%

79% 82% 81%

69%59%

46% 44%38% 34%

38% 40% 39% 35% 32%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun 00

Jun 01

Jun 02

Jun 03

Jun 04

Jun 05

Jun 06

Jun 07

Jun 08

Dec 08

Jun 09

Dec 09

Jun 10

Dec 10

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 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 Public Announcement to Industry on shift to RBSFinal report on RBS case study for Kenya

2008 RBA Staff undergo attachments in Australia, SA & UKRBA appoints consultant to facilitate Implementation of

RBS approach

FRAMEWORK DEVELOPMENT Preparing 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

Law amended to require time weighted mark- to-market reporting of investment performance

MOU signed with other financial sector regulators to collaborate in different areas including RBS

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

FRAMEWORK DEVELOPMENT Preparing for RBS

2010 (cont)Issue of interrogatories to all schemes:

• Governance self-assessment• DC or DB interrogatoryPractice note on Income draw Statutory guidance note on risk based supervision2011

Training of scheme administrators commenced in March 2011• Introduction to the Concept of RBS• International experience of RBS in pensions• RBA model for RBS• Implementation Challenges

Preparing the Industry for RBS

• Early Public announcements• Amending laws to have powers to issue practice notes based

on supervisory approach adopted• Amending laws to ensure uniform reporting and

performance measurement to enable comparable risk scoring

• General Workshop for industry• Detailed Workshops for administrators • Issue of interrogatories to all schemes:

Implementation Challenges

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

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

• Lack of appropriate data for a some schemes which makes it difficult to score them.

• 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