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Prerequisites and approaches in implementation of risk-based regulation of pension funds

Funded pension funds are an essential part of financial sector and a foundation of pension savings. This fact imposes a need for an adequate regulation of pension funds, so their business activities could ensure stable and sustainable pensions. The financial crisis had a significant impact on assets and profitability of pension funds, as important institutional investors with long-term investment strategy. Regulation of funded pension funds is extremely heterogeneous and, in most countries, leaning on simple rules-based regulation, which is essentially based on different investment limits, in order to create preconditions for their business stability. On the other side, risk-based regulation applied in conduct of business of banks and insurers, is still not developed in part of pension funds. The consultation process for development of risk-based regulation of Institutions for occupational retirement provision (IORP) has already started in the European Union. This paper examines assumptions and approaches to development of risk-based regulation of pension funds. Key advantages and disadvantages of this form of regulation are pointed out, as well as restrictions and particularities of its implementation in business activities of pension funds. Special attention is given to creating new regulation of institutions for occupational retirement provision (IORP) in the European Union based on standards and demands of risk-based regulation.

Pension funds; risk-based regulation; capital requirements

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