IOPS Principles of private pension supervision

John Ashcroft President, IOPS Head of Strategy, UK Pensions Regulator

Supervision of Pension Systems Current Trends and Issues

Warsaw 17-19 September 2006

IOPS principles of private pension supervision

• What is IOPS • What IOPS is doing • The diversity of pension supervision • The common core principles

What is IOPS

• The International Organisation of Pension Supervisors (IOPS) • An independent international body formed in 2004, representing those involved in the supervision of private pension arrangements. • Currently has around 50 members and observers, representing over 40 countries worldwide - from Australia to Zambia • Covering all levels of economic development and bringing together all types of pension and supervisory systems.

IOPS Goals

• Serving as the standard-setting body on pension supervisory matters • Promoting international co-operation on pension supervision • Providing a worldwide forum for policy dialogue and exchange of information on pension supervision • Participating in the work of relevant international bodies in the area of pensions, including joint research and activities to improve statistical collection and analysis

Programme of Work Key Projects

Risk-based supervision

• Joint with World Bank – first project designed to provide a comprehensive source of information on the motivations, practices and outcomes of risk-based methods used by private pension supervisors. • World Bank case studies on Australia, Netherlands, Denmark, Chile, Mexico • IOPS case studies on South Africa, Croatia, Kenya, UK, Germany

IOPS Principles Private Pension Supervision

• Approved by Governing Membership in December 2005 • Open for consultation until May 2006

Programme of Work On-going Projects

•

Supervisory education, including training of trustees

- Kenya*, Ireland, South Africa, United Kingdom, World Bank

•

Guidelines for compliance with the licensing of pension funds

- Australia*, Germany - joint work with the OECD

•

Cross-border pension supervision

- Spain*, Hungary, UK, Luxembourg

•

Utilisation of IT technology in off-site supervision

- Turkey*

•

Analysis of supervisory structures

- Mexico*

•

Information for members of DC schemes

- Italy*, Germany, Hungary

Cooperation with other organisations

• • •

Partnership agreements

OECD ISSA IAIS (pending)

• • •

Associate Members and Observers

IAA IMF World Bank

• •

Cooperation with regional supervisory bodies

AIOS CEIOPS

Conference Schedule

First Annual General Meeting held December 2005:

• Bylaws amended • Principles approved for consultation • New Executive Committee elected Australia / Chile / China / Germany Hungary / Italy / Jordan / Kenya / Pakistan / UK / Netherlands

2005 Regional conference held in Bangkok, Thailand:

• 12 Asian countries represented • 100 global delegates in total

2006 Regional conference held in Santiago, Chile:

• 11 Latin American countries represented • 150 global delegates in total (33 countries)

2006/ 2007 Information

• • • •

Meeting Schedule

November 6-8 th 2006 Istanbul, Turkey

IOPS committee meetings + AGM, + OECD/ IOPS Pensions Global Forum

March 21-23 rd 2007 Amsterdam, the Netherlands

IOPS committee meetings + DNB Pensions Conference

June 1 st 2007 Basel, Switzerland

IOPS committee meetings

November 2007, Beijing, China

IOPS committee meetings + AGM, + OECD/ IOPS Pensions Global Forum

Annual fees

• €7,500 €5,000 €2,500 • www.iopsweb.org

Diversity of supervised markets

• DB or DC or both • Mature or developing market • Employer or Government policy driven • Trust-based or financial entities • Relationship with insurance products • Large or small numbers of schemes and plans

Pension supervision structures are diverse

• Relationship with pensions regulation • Distance from Government • Unitary or combined supervisors

Diversity Pension Supervisory Structures

Multiple Supervisors Argentina Bahamas Barbados Botswana Brazil Bulgaria China Cyprus Egypt France Greece Hong Kong India Indonesia Israel Italy Jordan Lithuania Netherlands New Sealand Panama Philippines Poland Portugal Russia Slovenia Sri Lanka Spain Thailand Turkey USA Agency Supervising 2 Types of Financial Intermediaries Securities firms and insurers Bolivia Chile Egypt Mauritius Slovakia South Africa Ukraine Banks and insurers Australia Belgium Canada Colimbia Ecuador El Salvador Guatemala Kazakhstan Malaysia Peru Venezuela Banks and securities firms Dominican Republic Finland Luxembourg Mexico Switzerland Uruguay Single Supervisor Austria Bahrain Bermuda Cayman Islands Denmark Estonia Germany Gibraltar Hungary Iceland Ireland Japan Latvia Maldives Malta Nicaragua Norway Singapore South Korea Sweden UAE UK Source: de Luna and Rose (2003)

There are diverse supervision models

• Market regulation – Conduct of business – Prudential • Different supervision paradigms – Transactional – focus on influencing activities – Structural – focus on supervising the entities • Risk-based approaches – Quantitative sophistication – Prioritisation of interventions – Increased emphasis on education

But there are many common challenges • Integration of financial markets and supervision structures • Globalisation • Increasing longevity • The low interest rate environment • Adapting to new financial products and transactions Accommodating diversity and individual choice • Transition from investment in public debt • Enhancing corporate governance • Expanding coverage of informal sector and portability • Developing and supervising the pay out phase • Concerns about regulatory burdens • Moving to a risk-based approach

IOPS Principles of Private Pension Supervision

Principle 1: Objective

National Laws should assign clear and explicit objectives to pension supervisory authorities

Principle 2: Independence

Pension supervisory authorities should have operational independence

Principle 3: Adequate Resources

Pension supervisory authorities require adequate financial, human and other resources

Principle 4: Adequate Powers

Pension Supervisory authorities should be endowed with the necessary investigatory and enforcement power to fulfil functions and achieve their objectives

Principle 5: Risk Orientation

Pension supervision should seek to mitigate the greatest potential risks to the pension system

IOPS Principles of Private Pension Supervision

Principle 6: Proportionality + Consistency

Pension supervisory authorities should ensure that investigatory and enforcement requirements are proportional to the risks being mitigated and that their actions are consistent

Principle 7:Consultation + Cooperation

Pension supervisory authorities should consult with the bodies they are overseeing and cooperate with other supervisory authorities

Principle 8: Confidentiality

Pension supervisory authorities should treat confidential information appropriately

Principle 9: Transparency

Pension supervisory authorities should conduct their operations in a transparent manner

Principle 10: Governance

The supervisory authority should adhere to its own governance code and should be accountable