02.03.2016, 00:12
NPFs to Check Their Risk Resilience
OREANDA-NEWS. Each non-governmental pension fund (NPF) will compile its own risk register at least annually and conduct stress testing at least quarterly. Funds will assess their operations for risk resilience.
Requirements for the risk management system of NPFs are listed in the draft Bank of Russia Ordinance published on the regulator's website for public discussion.
The draft suggests that every fund should arrange a risk management system and consider the information on market, credit, operational and liquidity risks, as well as the fund's development strategy and the results of stress testing. The NPF shall arrange its risk management to ensure that the investment of pension savings meets the interests of current and future pensioners (fund's customers). Funds shall work out and review on a regular basis the target asset structure that reflects the optimal return to risk ratio, select assets for investing pension savings, determine criteria for selecting and assessing an asset management company, as well as assess the efficiency of pension savings management and enhance it on a regular basis.
The draft also contains requirements for funds' risk managers. They shall have at least four-year experience in risk management or investment strategy development. To rule out the conflict of interests, the fund's employees responsible for risk management shall be independent, shall not be able to make transactions to invest pension savings or pension reserves, and the NPF's remuneration system shall not encourage them to take risks.
Funds shall measure and assess separate risks as may be necessary but at least monthly and conduct stress testing on a quarterly basis to measure cumulative risks. An extraordinary stress testing shall be conducted if the composition and structure of the fund's assets and liabilities change considerably or the risk level is affected by developments in the market environment. Should a stress test prompt the NPF's failure to timely meet its obligations under the negative scenario, the fund shall within a month approve a recovery plan, submit it to the Bank of Russia's notice and implement the required measures.
Funds shall be able to build their risk management system in several stages: the risk identification system shall be established within six month, the risk management system shall be established within 12 months, and the first stress test shall be conducted within 18 months after the approval of the Ordinance.
The new document shall enhance NPFs' responsibility for their decisions and is likely to be the first step to expanding funds' investment policy statements. As NPFs start assessing risks from investing and prove their competence in this area, the regulator is likely to ease the requirements for admissible assets.
Requirements for the risk management system of NPFs are listed in the draft Bank of Russia Ordinance published on the regulator's website for public discussion.
The draft suggests that every fund should arrange a risk management system and consider the information on market, credit, operational and liquidity risks, as well as the fund's development strategy and the results of stress testing. The NPF shall arrange its risk management to ensure that the investment of pension savings meets the interests of current and future pensioners (fund's customers). Funds shall work out and review on a regular basis the target asset structure that reflects the optimal return to risk ratio, select assets for investing pension savings, determine criteria for selecting and assessing an asset management company, as well as assess the efficiency of pension savings management and enhance it on a regular basis.
The draft also contains requirements for funds' risk managers. They shall have at least four-year experience in risk management or investment strategy development. To rule out the conflict of interests, the fund's employees responsible for risk management shall be independent, shall not be able to make transactions to invest pension savings or pension reserves, and the NPF's remuneration system shall not encourage them to take risks.
Funds shall measure and assess separate risks as may be necessary but at least monthly and conduct stress testing on a quarterly basis to measure cumulative risks. An extraordinary stress testing shall be conducted if the composition and structure of the fund's assets and liabilities change considerably or the risk level is affected by developments in the market environment. Should a stress test prompt the NPF's failure to timely meet its obligations under the negative scenario, the fund shall within a month approve a recovery plan, submit it to the Bank of Russia's notice and implement the required measures.
Funds shall be able to build their risk management system in several stages: the risk identification system shall be established within six month, the risk management system shall be established within 12 months, and the first stress test shall be conducted within 18 months after the approval of the Ordinance.
The new document shall enhance NPFs' responsibility for their decisions and is likely to be the first step to expanding funds' investment policy statements. As NPFs start assessing risks from investing and prove their competence in this area, the regulator is likely to ease the requirements for admissible assets.
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