Preparing Supervisory
Authority and Pension
Industry for Risk-based
Supervision
Nzomo Mutuku
Manager, Research & Development
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
Private
Occupational
Non
Contributory/Pay
As You
Go (PAYG)
Civil
Service Pension
Scheme
Pension
System
Individual
Contributory
Open Schemes
State Old Age Pension on
pilot program
Mandatory
National –
National
Social Security
Fund
Kenya Pension Scheme Design
100%
90%
90%
65%
45%
37%
80%
70%
60%
DC
50%
DB
40%
30%
20%
10%
0%
Number of
schemes
Number of
Members
Assets
Estimated
Actuarial Liability
REGULATION MATRIX
Scheme/Trustees
Fund
Manager
Custodian
Scheme Administrator
Others (Actuary, Auditor,
Legal advisors, etc.)
Retirement Industry Assets
350,000
Other
300,000
Guaranteed Funds
K
250,000
S
h
s
Immovable
Property
Offshore
200,000
m
i
l
l 150,000
i
o
n
100,000
s
50,000
Unquoted Equties
Quoted Equities
Government
Securities
Fixed Income
Fixed Deposit
Cash
-
Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10
Note: Excluding NSSF
Retirement Industry Assets, %
100%
Other
90%
80%
46% 44%
38%
34%
38% 40% 39%
35% 32%
Immovable Property
59%
70%
Guaranteed Funds
69%
60%79% 82% 81%
Offshore
50%
Unquoted Equties
36%
40%
50% 41% 38%
42% 45%
30%
38%
36%
Quoted Equities
50%
Government
Securities
29%
20%
Fixed Income
23%
11%
11%
10%
4% 2%
0%
Jun
00
Jun
01
8%
4%
1%
1%
1%
1%
1%
13%
16% 20%
21% 26% 27%
Fixed Deposit
Cash
Jun
02
Jun
03
Jun
04
Jun
05
Note: Excluding NSSF
Jun
06
Jun
07
Jun
08
Dec
08
Jun
09
Dec
09
Jun
10
Dec
10
Regulatory Structure
Ministry of Finance
Central Bank of Kenya
Retirement Benefits
Authority
Insurance Regulatory
Authority
Capital Markets Authority
Commercial banks
Retirement Benefits
schemes
Insurance Companies
Non Bank Financial
Institutions
Individual pension Plans
fund Managers
Insurance Brokers
Pooled Schemes
Central Depository Systems
Insurance Agents
NSSF
Custodians
Assesors & Adjustors
Administrators
Investment Banks
Health Management
Companies
Collective Investment
Schemes
Medical Insurance
Providers
Investment Advisors
Mortgage Companies
Forex Bureaus
Building Societies
Micro Finance
CRBs
Fund Managers
Custodians
Securities Exchanges
Insurance Surveyors
Insurance
Investigators
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 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
Public Announcement to Industry on shift to RBS
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 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 require time weighted mark- to-market
reporting of investment performance
MOU signed with other financial sector regulators to
collaborate in different areas including RBS
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 interrogatory
Practice note on Income draw
Statutory guidance note on risk based supervision
2011
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