Preparing Supervisory Authority and Pension Industry for Risk-based Supervision Charles Machira, Manager, Supervision Retirement 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
Kenya Pension System State Old Age Pension on pilot program Non Mandatory Contributory/Pay As – National. You National Go (PAYG) Social Security Civil Fund Service Pension Scheme Pension System Private. Individual Contributory Occupational Schemes Open
100% 90% 65% 45% 37% 90% 80% 70% 60% 50% DC 40% DB 30% 20% 10% 0% Number of schemes Number of Members Assets Estimated Actuarial Liability
REGULATION MATRIX Scheme/Trustees Custodian Fund Manager Scheme Administrator Others (Actuary, Auditor, Legal advisors, etc. )
Retirement Industry Assets Note: Excluding NSSF
Regulatory Structure Ministry of Finance Central Bank of Kenya Commercial banks Non Bank Financial Institutions Mortgage Companies Forex Bureaus Building Societies Micro Finance CRBs Retirement Benefits Authority Retirement Benefits schemes Individual pension Plans Pooled Schemes NSSF Administrators Fund Managers Custodians Insurance Regulatory Authority Insurance Companies Insurance Brokers Insurance Agents Assesors & Adjustors Health Management Companies Medical Insurance Providers Insurance Surveyors Insurance Investigators Capital Markets Authority Securities Exchanges fund Managers Central Depository Systems Custodians Investment Banks Collective Investment Schemes Investment Advisors Stock Brokers Securities Dealers Listed companies Credit Rating Agencies Venture Capital Firms
RETIREMENT BENEFITS AUTHORITY (RBA) § Created in 2000 by an Act of Parliament § 50 Staff • Regulate and supervise establishment and management of retirement benefits schemes. Statutory Objectives • 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
Why did RBA adopt RBS? • Allows systematic assessment within a formalized framework both at the time of examination and in between through offsite 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 2005 2006 WB Institute facilitates training on Pension Supervision effectively introducing RBS Framework Introduction/ Consultation-Initial draft 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 2008 Final report on RBS case study for Kenya 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 model Consultant submits final report including; • • 2010 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
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: Ø Governance self-assessment Ø DC or DB interrogatory Ø Practice note on Income draw Ø 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
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