“It’s amazing that we have moved from discussing a mere idea, to a point where we are sharing experiences of how sector stakeholders are actually using the system. We have come a long way,” Daisy Nabakooza’s face lights up as she speaks of URBRA’s Risk Based Supervision System. She recalls that the journey started circa 2016, and has been characterized by ideation sessions, consultations, trials, user training, change management…all driven by the tireless efforts of the project team. Nabakooza is the Chief Manager – Supervision and Market Conduct, the URBRA Department that oversees the conduct of licenced entities.
The Risk Based Supervision System is a supervisory technology that will enable URBRA to make risk and compliance monitoring more predictive and proactive. It will ensure real time monitoring; enhance data collection, analysis, validation and visualisation; improve identification and evaluation of risks; and result in efficiency and effectiveness for both the regulator and regulated entities arising from more automation in data generation and management.
“A regulator is likely to have many institutions to supervise and may not have the number of staff to carry out all the activities of supervision. That calls for some tools that help to identify areas for improvement. The Risk-Based supervision system provides those tools,” Nabakooza says.
Given the exponential growth of the sector since the establishment of the regulator in 2011, it was time to replace the manual handling of data with an automated system. URBRA now regulates over 65 licensed schemes, in addition to Trustees,
Administrators, Managers and custodians. The need to regularly check and monitor their performance and operations, triggered the regulator to consider an electronic system to replace the manual which was getting ever more cumbersome. The need to identify risk as early as possible in the sector goes beyond setting checklists of requirements, to showing the implications, the quality of the requirements and how those affect the operations of the entity in question and the broader sector. The risk-based system makes it easier to identity and rate risks and mitigate their possible effects.
System up and running
The system interface has different modules which include onsite inspection and due diligence, risk rating module, returns module, complaints and whistle blowing module, licencing module among others. These have been rolled out in a modularized flow.
“We went live with the system in November 2023. At that time, we were going through the licencing cycle for our service providers. It was an ideal time to use the system and get it out there. Actually, all the licences for schemes, trustees, fund managers, administrators and custodians have all been processed on the system since November 2023. Essentially, all our key supervised entities have by now used the system at one point or another,” Nabakooza says, happy that the market embraced the system.
After rolling out the licencing module, the Authority then rolled out the returns module, because at that point in time, half-year and December quarterly returns were due for filing. Other modules have also been set up but not yet used because the situations that require their use have not yet cropped up. These include the modules for interim administration, complaints, sanctions, mergers and winding up and the ad hocs.
True to its name, the system has so far enabled both URBRA and the supervised entities to know he risk rating profile of the schemes. “We want schemes to be able to monitor their risk profile. It could be an issue of late remittance of contributions or late filing of returns; system users should be able to get this information in real time. Trustees should also be able to access the information and assess performance especially with regard to compliance,” Nabakooza explains.
Enabling deeper supervision and assessment
With the new system, the risk rating seems to shoot up, but that shouldn’t worry sector stakeholders. That hike is attributed to the new assessment points that have been included, and are now being monitored. For example, in the old supervision process, URBRA mainly looked at compliance levels But the new system has incorporated interrogatories which enable URBRA to look beyond mere statistics and collect qualitative data. If you have trustees for example, do you know who they really are; are they all licenced? If you have an internal credit policy, are you really implementing it; when did you last review it?
“All these new data points are now enabling us to deepen our assessment and our supervision. We are now able to monitor small issues that crop up and address them before they grow into full-blown risks or even crises. It’s because of these issues that the risk profile seems to be higher. But for us that is a positive thing because we nip them in the bud,” Nabakooza adds.
One would think that the expansion of the scope overstretches URBRA’s manpower and capabilities, but to the contrary, the risk-based supervision system has given staff time to focus on important supervision points. Previously, the team used excel, and one officer would be allocated up to five schemes and they would spend a very long time working through sheets upon sheets of data. They would enter the data manually and then use their subjective judgement to come up with supervisory action. A lot of manpower and manhours went into that process, but now the entire excel toolkit has been embedded into the system and the officers who used to look for information manually now spend more time on analysis of results and necessary supervisory actions.
Other gains of the risk-based supervision system are seen in form of easier and faster interaction. Where information was collected over a long time because of the time lag of communication between the supervisor and the supervised entities, now it is fully availed as soon as a service provider or a scheme logs on and enters the information. It has been observed that interaction with stakeholders has gone up from 20% to over 80% online. Previously some information was sent by email or in hard copies, making it hard to keep track of everything. With the newly-installed risk based supervision system, all records are in one place, human error has reduced significantly; less time is spent on filing; data is broken down to the last detail; and analysis is automated. Staff now have the opportunity to focus on other aspects of the job.
Thankfully, the adoption rate has been good. Schemes and service providers have quickly adjusted to new system. That maybe because the Authority has decided that all processes will now be on the system, leaving no choice to would-be resistors. But on the whole, the response has been great, albeit with a steep learning curve for some. Most importantly, the regulator has invested effort and resources in training users and supporting them to adjust.
Training has been a key part of the journey, to ensure that all system users know exactly how to use it. Many times, the trainings have been tailored to specific user needs and questions, although some generic group trainings were also conducted. Feedback generated from the training and trialing enabled the project team to make adjustments and clarify issues. For example, where data had been mismatched during migration, user feedback was applied to ensure that service providers were matched to their right schemes. Now service providers are able to access and update information about the schemes they serve. Most importantly, the schemes are also able to monitor the profiles of their service providers.
To further aid adoption and uptake, user support continues. User manuals have been shared; users can schedule meetings with URBRA; a ticketing system sand a support link have also been created. The whole purpose is to avoid situations where users get stuck. “This system is supposed to be the key interfacing platform between the authority and the supervised entities,” Nabakooza emphasises.
Surmountable Challenges
Initially, one of the challenges anticipated was the issue of change management. That mostly came to pass when the returns module was being rolled out. The main reason was the expansion of the returns template to include parameters that the licenced entities were not used to.
“There was information we used to get in a block, but now with the new system, we had to break it down to minute details. So, at the start it was an issue of change management but also a steep learning curve,” Nabakooza observes. Service providers had not grasped the whole range of details required, and many of them requested URBRA to stay the module and allow them to transition slowly from the old mode of doing things. “But we stood our ground and instead intensified support and training. We even asked URBRA management to approve the extension of the deadline for filing returns, to allow service providers transition without too much pressure. We got the waiver and instead of having returns filed end of January, the deadline was extended to February,” she adds.
The other challenge is about some service providers who were used to doing things manually, but with the level of detail required, they think that now the demands are too many yet they don’t match the kind of fees they charge their clients. For example, previously a service provider would provide a consolidated report about their whole portfolio, but now they are required to provide a detailed report per scheme. That means they have to employ more staff to do that. But also, to adopt and integrate with the new system, they have to invest in some technology and more staff. “This challenge came up and we have to find a way to address it. At the same time, it made us realise that it may be time to discuss the idea of regulating costs of operation,” Nabakooza says.
The few challenges notwithstanding, URBRA is more interested in the long-term outcome that the sector will get from the risk based supervision system. What is the ultimate goal? The long-term vision is to see a stable sector. Retirement Benefits is part of the broader financial sector whereby a small event can destabilize the whole system, that can kill confidence and the uptake of products. A robust supervision system ensures that risks are forestalled; it enables us to detect possible faults and close them before they become total disasters.
The system will also ensure that the regulator is in tune with the key developments in the financial service sector. For example, with a more accurate picture of how the sector is performing, it is easy to tell where the sector lies in terms of in-country and regional indicators. This will enable the regulator and other key stakeholders to take informed decisions about the necessary supervisory action.
As more sector stakeholders adopt and apply the system, URBRA will invest more efforts in supporting both internal and external users to ensure that the system is put to optimum use. It is important to note that pension and retirement benefits regulators around the world are quickly embracing risk based supervision, hence URBRA is on the right track. “It’s not a waste of time; nor a waste of money we just have to accept the fact that this is where we are headed; this is where everyone is going,” Nabakooza concludes.