DNB carries out risk-based supervision. DNB has developed a risk analysis model for this purpose: the Financial Institutions Risk Analysis Model (FIRM). With the help of FIRM and the information available about a pension fund, relevant risks are identified and assessed. DNB uses the risk profile drawn up using FIRM to set priorities in operational supervision.
Once a pension fund has been set up or an insurer is administering pension schemes, the supervisory practice consists of gathering and assessing information. DNB has the following sources of information for the ongoing work of supervision:
- pension fund charters, pension rules and regulations, administration agreements with employers;
- Actuarial and Technical Business Reports (abtn);
- reports and financial statements;
- quarterly reports;
- reports requested on an ad hoc basis.
In addition, DNB receives information through interviews and on-site investigations. DNB also obtains information from the analysis of developments in the pension sector and from contacts with other supervisors, and carries out business analyses based on this information. Information and analysis together form the basis for DNB’s supervision of pension funds.
An important part of the supervision of pension funds is assessing whether pension funds have sufficient reserves (whether they are solvent). In principle, the standard is the same for all funds. However, funds differ considerably from one another, in particular with regard to the commitments (pension scheme rules), the administration agreement, the firmness of the indexation commitment, funding methods, the composition of the pension scheme membership (e.g. degree of maturity) and the investment mix.
DNB holds periodic consultation with the pension fund’s executive board and/or management or a delegation from such body. This consultation addresses the current situation and progress, as well as plans and expectations for the coming years. At DNB’s request the actuary and/or auditor may be involved in the consultation. The frequency of such periodic consultation depends among other things on the size and risk profile of the pension fund.
One element of risk-based supervision is that the risk profiles of pension funds and the scope of their risk management are updated regularly. DNB identifies the risk management measures in place by, among other things, carrying out its own on-site investigations.
Reporting framework for pension funds
An important source of information in assessing the financial position is formed by the quarterly and annual reports and statements submitted electronically. A large part of the work of assessing these reports and statements has been automated. They are ‘read into’ a databank. The system may identify matters requiring assessment. Where the financial position is worsening, DNB will analyse the reason for this. The causes may include movements on the financial markets, incorrect administration of the pension scheme, or incidental causes. Depending on these, the fund is asked what measures the management intends to take in order to improve the financial position.
In supervisory practice, DNB works together with AFM, which is responsible for conduct of business supervision of pension funds and pension insurers from 1 January 2007. This cooperation includes:
- determining secondary legislation on subjects relevant to both prudential and material supervision and conduct of business supervision;
- exchanging information and determining concrete supervisory activities
- advance consultation on specific (planned) supervisory measures with significant impact.
The cooperation between DNB and AFM is described partly in the Pension Act, the Obligatory Occupational Pension Schemes Act and the secondary legislation based on these Acts and partly in a covenant between the two supervisory authorities. In cases involving cross-border activities carried out by Dutch pension funds or carried out by foreign pension funds in the Netherlands, DNB also cooperates with the supervisory authorities in the other countries where the pension fund is active. A protocol for this has been developed: the CIEOPS Budapest Protocol.
Click here for information on CEIOPS
Committee of European Insurance and Occupational Pensions Supervisors