CEIOPS has decided to undertake a survey of the risk management rules applicable to IORPs in each Member State. The report findings show that slightly more than half the Member States have implemented generic risk management rules.
In today’s world of financial institutions employing complex governance structures, risk management practices undoubtedly play a very important role both in the regulation and supervision of institutions for occupational retirement provision (hereafter referred to as “IORPs”). A solid risk management approach is an important building block of institutional accountability. Evidence for this can be found in the 2008 – 2009 financial crisis rooted in the US credit crunch, in which there were signs of risk management policy failure in the banking sector. These events have contributed to making risk management a focus of attention for regulators across the whole spectrum of financial institutions, of which IORPs are an important part. CEIOPS has therefore decided to undertake a survey on the risk management rules applicable to IORPs in each Member State (MS) as well as the supervisory practices to review and control these rules.
Some of the findings about risk management rules are presented below.
· Globally speaking, slightly more than half the Member States have implemented generic risk management rules although acknowledgement should be made of the fact that 19 of the responding countries (83 per cent) have implemented at least one of the generic RM rules. Concerning the main forms of implementation of these RM rules, only the fit and proper requirements for the RM function are usually established by primary legislation, while the remaining four generic rules are mainly established by secondary legislation.
· Non-binding supervisory guidance is used to establish the proportionality rules and definition of a risk management process.
· From an overall perspective, more than half the countries have implemented specific risk management rules. Considering the specific rules, it can be concluded that market risk, credit risk and operational risk are those which are subject to more legislative/regulatory action while strategic and external risk, and other risks, are the ones subject to less action. In terms of implementation methods, the specific rules are more or less consistently implemented in the same way across the specific risks (with the exception of other risks) with secondary legislation being the first form of implementation and primary legislation and non-binding supervisory guidance being the second (with roughly the same weight).
· The majority of countries who have implemented fit and proper requirements for the people responsible for the RM function have chosen to do it by specifying generic requirements, although three countries have put down specific requirements.
· In terms of risk management documentation rules, the components of such documentation usually cover the RM objectives, the RM responsibilities and functions and the risk management process. Some countries also extended the requirements to cover the risk register and the risk treatment.
· Proportionality rules were established in eight countries and they usually follow the lines of ‘adequate to the IORPs dimension, nature and complexity of the operations and should take into consideration the specificity of the IORPs risks’.
· Eleven countries have additional disclosure requirements to members and beneficiaries about risk management other than those set forth in the Directive. Among the additional disclosures required are: to give advice on risks; to mandatorily provide pension projections and indicate the volatility of pension asset values; to mandatorily explain the risks, the investment options (if applicable), the information on potential risk and the costs related to the investment provided the member bears the investment risk; and finally the requirement for a three yearly report covering all risks attached to the financial instruments and the methods used for management and evaluation of investment risk.
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