Publication: Risk-Based Supervision of Pension Funds in Australia
Date
2008-02
ISSN
Published
2008-02
Author(s)
Thompson, Graeme
Abstract
This paper examines the development of
risk-based supervision of pension funds in Australia. The
large number of pension funds has meant that since the
inception of pension fund supervision in the early
1990's the regulator has sought to identify high risk
funds and focus its attention on these funds. However, the
regulator developed a more sophisticated risk-rating model,
known as PAIRS/SOARS, in 1992 in order to apply a more
disciplined and consistent ratings methodology. Four
reasons are given for the move towards more sophisticated
risk-based supervision: 1) creation of an integrated
supervisor which allowed the use of techniques used in
banking and insurance to be adopted for pension fund; 2) the
need to better use available supervisory resources; 3)
several pension fund failures; and 4) concerns about
industry weaknesses. Supervisory techniques used
particularly in the banking industry, such as universal
licensing, 'fit and proper' assessment, and risk
management requirements were adopted for the pension sector
between 2004 and 2006. The paper provides an outline of the
PAIRS/SOARS risk-rating model which was also adopted. It
observes that the approach provides an analytical discipline
to risk assessment, strengthens the link between risk
assessment and supervisory response, and allows better
targeting of supervisory resources.
Citation
“Thompson, Graeme. 2008. Risk-Based Supervision of Pension Funds in Australia. Policy Research Working Paper; No. 4539. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/bdc0e194-8f60-582c-b9f6-be2435940a5d License: CC BY 3.0 IGO.”
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