Risk-based Supervision of Pension Funds : Emerging Practices and Challenges

Abstract

Risk-based supervision of pension funds
 grew out of a project that was jointly conducted by the
 World Bank and the International Organization of Pension
 Supervisors (IOPS). The project was initiated in response to
 the increasing interest in the development of innovative
 approaches to pension supervision from the member countries
 of both institutions. The volume provides an initial
 assessment of the development of risk-based supervision of
 pension funds in four countries that have been pioneering
 the development of risk-based supervision methods in various
 forms. The volume is comprised of a summary chapter and
 in-depth studies of the experience in four individual
 countries-Australia, Denmark, Mexico, and Netherlands. These
 four country studies were prepared by experts familiar with
 the systems in each of the countries. The studies have been
 edited by World Bank staff to ensure a consistent approach
 to the analysis of the various countries' systems.
 Models of risk-based supervision demonstrate the benefits of
 moving away from an approach based on strict compliance,
 specific rules, and quantitative controls toward an approach
 that puts more emphasis on the identification and management
 of relevant risks. A risk-based approach encourages
 supervised entities to place a greater focus on risk
 management in their daily operations, which promotes a
 stronger pension system and more effective outcomes for the
 members of the system. It is also expected that moving to a
 risk-based approach to supervision will enhance the ability
 of supervisors to focus resources on areas of highest risk,
 which will, over time, result in a more efficient use of
 supervisory resources.