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
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
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
Custodian
Fund Manager
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
-
June 02 June 03 June 04 June 05 June 06 June 07 June 08 Dec 08 June 09 Dec 09 Jun 10
Note: Excluding NSSF
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 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:
 Governance self-assessment
 DC or DB interrogatory
 Practice note on Income draw
 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