IOPS Principles of Private
Pension Supervision–
Assessment Results
Ross Jones – President IOPS
Deputy Chairman, Australian Prudential Regulation
Authority
MENA Workshop on Private Pension Supervision
March 1-2 2011
Amman, Jordan
www.iopsweb.org
IOPS Principles of Private Pension Supervision
 IOPS Principles presented at 2009 MENA workshop - since revised take
account of standards and work developed by the IOPS + lessons leant
from the financial crisis
 Main changes:
 No 2 Independence – head of the authority should be appointed for
a fixed term (normally 3-6 years) with reappointment allowed
 No.3 Adequate Resources – fee structure should be transparent
 No 4 Adequate Powers –
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4.5 well defined strategic goals and a policy for deciding on the mix
of supervisory tools is required
 4.6 sufficient gradation of powers is required
 4.7 certain powers are required even if not used actively (deterrent)
 4.8 exceptional measures should be allowed in times of acute
financial and economic difficulty
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No. 5 Risk-based Supervision – see Toolkit
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4.3 flexible legal framework required to allow preventative action
IOPS Principles of Private Pension Supervision
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No 6 Proportionality and Consistency –
 6.1 link risk assessments and supervisory action should be linked / avoid
pro-cyclicality
 6.2 balance costs and impact of supervisory action
 6.3 follow due process
 6.4 documents process to ensure proportionality
 6.5 escalate response appropriately
No 7 Consultation and Cooperation – intensify coordination during
periods of economic and financial difficulty
No. 8 Confidentiality –
 8.1 internal codes of confidentiality for staff
 8.2 limited access in IT systems
 8.3 publish confidentiality policy
No 9 Transparency
 9.3 publish supervisory response framework (enforcement pyramid)
 9.5 publish intervention and sanction decisions
No. 10 – Governance - supervisory authority needs requires governance
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codes, internal risk-management systems and performance measurement
IOPS Principles of Private Pension Supervision
METHODOLOGY
 Provides a structured framework for assessing the extent to which a pension
supervisory authority complies with the letter and spirit of the Principles
 Can be used for external or self-assessment
 Also indicates type of evidence that may help to answer questions
 Compliance rated as:
- Fully implemented – the IOPS Principle is implemented in all material respects
- Broadly implemented – the Principle is implemented in all but one or two
material respects and the exceptions do not significantly detract from the overall
opinion. It should be possible to say something positive about compliance in
answer to nearly every question
- Partly implemented – while a negative answer is given to some questions, the
responses to the majority of the questions are consistent with compliance
- Not implemented - there are major shortcomings against the Principle
- Not applicable –the Principle does not apply due to structural, legal or
institutional features
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IOPS Principles of Private Pension Supervision
Principle 1 : Objectives
National laws should assign clear and explicit objectives to
pension supervisory authorities
 Strategic objectives should be clear and public
 Responsibilities of the pensions supervisor should give a clear
mandate and assign specific duties
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IOPS Principles of Private Pension Supervision
Principle 1 : Objectives; Assessment questions
 Is there legislation providing for a pension supervisor?
 Does the legislation set out objectives?
 Are objectives public and binding?
 Does the legislation explicitly set out responsibilities and duties of
the pension supervisor?
 Does the supervisor explicitly set out its responsibilities and duties
(and are they consistent with legislative objectives?)
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IOPS Principles of Private Pension Supervision
Principle 2 : Independence
Pension supervisory authorities should have operational
independence
 Autonomy in day-today operations and decision making
 Funding to ensure independence
 Appointment procedures transparent
 Judicial review of supervisory actions
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IOPS Principles of Private Pension Supervision
Principle 2 : Independence; Assessment questions
 Is the supervisory authority established as a body with operational
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independence?
What type of restrictions exist on the ability of the government to
make directions to the supervisory authority?
Is there transparency in the process for appointing senior
positions?
Is there transparency in the process for terminating senior
positions so that threat of termination can’t be used to influence
decisions?
Are senior officers replaced when there is a change of
government?
If funded by levies on supervised entities, is there freedom from
interference by these entities?
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IOPS Principles of Private Pension Supervision
Principle 3 : Adequate resources
Pension supervisory authorities require adequate
financial, human and other resources
 Able to conduct functions efficiently and independently
 Funding to ensure independence
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IOPS Principles of Private Pension Supervision
Principle 3 : Adequate resources; Assessment questions
 Is the budgetary timeframe long enough (e.g. 3 years) to
provide stability in planning and recruitment?
 Is the budget sufficient to enable supervisory agency to meet
its responsibilities? (very subjective)
 Does the agency have freedom in hiring with regard to staff
numbers and salary?
 Are senior staff appropriately qualified?
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IOPS Principles of Private Pension Supervision
Principle 4 : Adequate powers
Pension supervisory authorities should be endowed with the
necessary investigative and enforcement powers to fulfil
their functions and achieve their objectives
 Powers appropriate to the system being supervised
 Powers appropriate to the manner of supervision e.g. appropriate
investigatory and enforcement powers
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IOPS Principles of Private Pension Supervision
Principle 4 : Adequate powers; Assessment questions
 Are the supervisor’s powers clearly established by its governing
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legislation?
Can the supervisor gain access to the information it needs?
Is there a licensing or registration process that enables the
supervisory agency to obtain relevant information and to
reject/amend/revoke the license/registration in the case of serious
non-compliance?
Can the supervisor enforce legislation relating to funding/capital
adequacy, fitness and propriety?
Have there been any difficulties in using available powers?
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IOPS Principles of Private Pension Supervision
Principle 5 : Risk orientation
Pension supervision should seek to mitigate the greatest
potential risks to the pension system
 Objectives of supervision should be risk-based
 Allocate supervisory resources to highest risk areas
 Pro-active approach to avoid problems before they occur
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IOPS Principles of Private Pension Supervision
Principle 5 : Risk orientation; Assessment questions
 Are the supervisory authority’s objectives risk based rather
than focusing on compliance?
 Are resources of the authority allocated to the highest risk
areas?
 Do the supervisors consider both the probability and likely
impact of potential risks?
 Does the supervisor assess risks for each entity under
supervision (for example by a risk scoring model)
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IOPS Principles of Private Pension Supervision
Principle 6 : Proportionality and consistency
Pension supervisory authorities should ensure that
investigatory and enforcement requirements are
proportional to the risks being mitigated and that their
actions are consistent
 Important to have the appropriate range of legal powers and tools
 Similar cases dealt in similar manner
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IOPS Principles of Private Pension Supervision
Principle 6 : Proportionality and consistency; Assessment
questions
 Can the supervisory authority vary its activities according to the
magnitude of risks being addressed?
 Does the supervisory have procedures for helping the choice of a
proportionate response, such as an enforcement pyramid?
 Does the supervisory allow entities appropriate flexibility in deciding
how to comply with legislation?
 Are there processes in place to ensure consistency between actions
where circumstances are similar?
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IOPS Principles of Private Pension Supervision
Principle 7 : Consultation and cooperation
Pension supervisory authorities should consult with the
bodies they are overseeing and cooperate with other
supervisory authorities
 Industry consultation assists to get ‘buy-in’
 Information exchange with co-regulators at home and under
cross-border arrangements promotes efficiency and supports
preventative measures
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IOPS Principles of Private Pension Supervision
Principle 7 : Consultation and cooperation; Assessment
questions
 Does the supervisory authority consult with the pensions
industry when determining strategic supervisory approaches?
 Is the supervisory authority empowered to exchange
information with equivalent oversees authorities, subject to
appropriate requirements?
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IOPS Principles of Private Pension Supervision
Principle 8 : Confidentiality
Pension supervisory authorities should treat confidential
information appropriately
 Only release if permitted by law
 If in doubt, check first
 Principle extends ‘down the line’
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IOPS Principles of Private Pension Supervision
Principle 8 : Confidentiality; Assessment questions
 Does the supervisory authority have a confidentiality policy which
sets out the authority’s procedures to prevent inappropriate
disclosure of non public information?
 Are there mechanisms to prevent disclosure of confidential
information by staff, including after they have left the supervisory
authority?
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IOPS Principles of Private Pension Supervision
Principle 9 : Transparency
Pension supervisory authorities should conduct their
operations in a transparent manner
 Adopts clear, transparent and consistent processes
 Regularly reports on policy and performance
 Subject to external review
 Publishes industry information
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IOPS Principles of Private Pension Supervision
Principle 9 : Transparency; Assessment questions
 Does the supervisory authority publish its rules and procedures?
 Is the supervisory authority subject to appropriate audit and
reporting requirements (that do not compromise its independence)?
 Does the supervisory authority publish an Annual Report explaining
how it has (or has not) met its objectives?
 Does the supervisory authority explain to individual supervised
entities why it has taken particular action?
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IOPS Principles of Private Pension Supervision
Principle 10 : Governance
The supervisory authority should adhere to its own
governance code and should be accountable
 Controls, checks and balances
 Code of conduct
 Decisions are reviewable
 Accountable to e.g. Parliament, members and beneficiaries
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IOPS Principles of Private Pension Supervision
Principle 10 : Governance; Assessment questions
 Does the supervisory authority have appropriate codified procedures
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for internal governance, and is compliance with these, monitored
and enforced?
Is there a code of conduct for all staff regarding gifts, hospitality etc
and declaring conflicts of interest?
Is there independent review within the agency of decisions which
have significant implications for the supervised entity?
Is there an appeals process against decisions?
Does the supervisory agency measure its performance against
objectives and provide external stakeholders with the results?
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IOPS Principles of Private Pension Supervision
Self-Assessment Results
Well Implemented Principles
Poorly Implemented Principles
1 Objectives
Medium Implemented
Principles
10 Governance
4 Powers
9 Transparency
6 Proportionality + Consistency
7 Communication
2 Independence
3 Adequate Resources
5 Risk-based Supervision
8 Confidentiality
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IOPS Principles of Private Pension Supervision
Recommendations
 To improve compliance with the IOPS Principles, pensions
supervisory authorities may consider:
 Embedding strategic objectives in legislation, make these more riskorientated, and publish performance assessment vs. them
 Making appointment of head of authority and board transparent and
fair (requiring suitable professional experience)
 Striving for more autonomy in the setting of supervisory budgets
(including longer time periods)
 Introducing indemnity for the authority’s staff
 Striving for more independence and flexibility in terms of staff policy
 Using the introduction of risk-based supervision to review and redefine
required supervisory powers.
 Developing a formal framework for risk-based supervision
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IOPS Principles of Private Pension Supervision
Recommendations
 Developing procedures for articulating supervisory responses (e.g.
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enforcement pyramid).
Intensifying dialogue with supervised entities to help aid their
understanding of supervisory expectations, procedures and actions,
Improving international dialogue with supervisory peers.
Drafting manuals for the treatment of confidential information
Undertake cost-benefit analysis of supervisory actions.
Strengthening the governance requirements of the supervisory authority
itself (introducing codes of conduct, reviews of supervisory
interventions etc.)
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