Preparing Supervisory Authority and Pension Industry for Risk-based Supervision

1. Preparing Supervisory Authority and Pension Industry for Risk-based Supervision Nzomo Mutuku Manager, Research & Development Retirement Benefits Authority, Kenya

2. 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

3. Kenya Pension System State Old Age Pension on pilot program

4. Kenya Pension Scheme Design

5. REGULATION MATRIX Fund Manager Scheme/Trustees Custodian Scheme Administrator Others (Actuary, Auditor, Legal advisors, etc.)

6. Retirement Industry Assets Note: Excluding NSSF

7. Retirement Industry Assets, % Note: Excluding NSSF

8. Regulatory Structure

9. RETIREMENT BENEFITS AUTHORITY (RBA) • Created in 2000 by an Act of Parliament • 50 Staff • Regulate and supervise establishment and management of retirement benefits schemes. • 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 Statutory Objectives

10. Why did RBA adopt RBS? • Allows systematic assessment within a formalized framework both at the time of examination and in between through off-site 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

11. FRAMEWORK DEVELOPMENT Preparing for RBS 2004 WB Institute facilitates training on Pension Supervision effectively introducing RBS 2005 Framework Introduction/ Consultation-Initial draft 2006 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 Public Announcement to Industry on shift to RBS Final report on RBS case study for Kenya 2008 RBA Staff undergo attachments in Australia, SA & UK RBA appoints consultant to facilitate Implementation of RBS approach

12. FRAMEWORK DEVELOPMENT Preparing for RBS 2009 Consultant Trains staff on RBS model Consultant submits final report including; • 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 2010 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 

13. 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

14. 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:

15. 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.

16. Thank You Asante www.rba.go.ke