# **Tables of Contents**

|Preface................................................................................................................................. 1|
|---|
|I.<br>Introduction................................................................................................................. 2|
|II.<br>Pension System........................................................................................................... 2|
|III.<br>Prudential Regulation in the 1990s......................................................................... 6|
|IV.<br>Evolution of Risk-Based Regulation ...................................................................... 8|
|1.<br>Drivers for Change.................................................................................................. 8|
|1.1.<br>Organizational change .................................................................................... 8|
|1.2<br>Resources........................................................................................................ 8|
|1.3<br>Fund failures ................................................................................................... 9|
|1.4<br>Framework weaknesses .................................................................................. 9<br>|
|1.5<br>Superannuation inquiry 2002........................................................................ 10|
|2.<br>Strengthening the Risk-Based Policy Framework ................................................ 10|
|2.1<br>Licensing and registration............................................................................. 10|
|2.2<br>Fitness and propriety standard ...................................................................... 11|
|2.3<br>Risk management standard ........................................................................... 11|
|2.4<br>Outsourcing standard .................................................................................... 11|
|2.5<br>Trustee resources standard............................................................................ 12|
|2.6<br>Net tangible assets standard.......................................................................... 12|
|2.7<br>Auditors......................................................................................................... 12|
|V. Risk-based Supervision Today ................................................................................. 13|
|1.<br>Strategic Framework......................................................................................... 13|
|2.<br>Organization of APRA...................................................................................... 14|
|3.<br>Methods and Procedures...................................................................................... 15|
|3.1<br>The PAIRS/SOARS model........................................................................... 15|
|3.2<br>Calculating PAIRS ratings............................................................................ 19|
|3.3<br>Impact ........................................................................................................... 19|
|3.4<br>Supervisory stance (SOARS)........................................................................ 20|
|3.5<br>Guidance for analysts.................................................................................... 23|
|4.<br>Assessing a Fund’s Riskiness ........................................................................... 23|
|4.1<br>Balance sheet/investment risk....................................................................... 24|
|4.2<br>Outsourcing and other operational risks ....................................................... 26|
|4.3<br>Risk management.......................................................................................... 28|
|4.4<br>Capital support.............................................................................................. 30|
|4.5<br>Small funds ................................................................................................... 30|
|5.<br>Usefulness of PAIRS ............................................................................................ 30|
|6.<br>Statistics............................................................................................................ 31|
|6.1<br>Annual attestation ......................................................................................... 31|
|7.<br>Human Resources Policies................................................................................ 31|
|8.<br>Evaluation of Effectiveness .............................................................................. 32|

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