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The Actuary The magazine of the Institute & Faculty of Actuaries
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Regulation: Actuarial quality

In its latest annual report to the business secretary, Vince Cable, the Financial Reporting Council (FRC)’s Professional Oversight Board (POB) has reported a positive response from the Profession to the FRC’s revised Actuarial Quality Framework, which brings together:
>> The work of the Board for Actuarial Standards (BAS) to promote the reliability and usefulness of actuarial methods, and the communication of actuarial information and advice
>> The work of the Profession to promote technical skills of actuaries as well as their ethics and professionalism
>> The work of actuarial firms and employers to provide the right working environment for actuaries
>> The work of users of actuarial work, such as clients, investors, auditors and regulators, to challenge actuaries to provide high-quality actuarial work.

We will not see the fruits of the Profession’s latest work until this year at the earliest. However, it is already clear that the Professional Regulation Executive Committee, chaired by Sir Philip Mawer, and the Qualifications Executive Committee, chaired by Paul King, are committed to a new focus on the Profession’s intended public interest outcomes, and the quality of its regulatory processes for achieving them.

Under the arrangements established between the actuarial profession and the FRC in 2006 following the Morris Review, the Profession retains primary responsibility for the regulation of its members acting in their professional capacity. The POB’s remit is to make recommendations, which the Profession will either implement within a reasonable period or give reasons for not doing so, on the basis that those reasons will be published.

The Actuarial Quality Framework has been central to the POB’s dialogue with the Profession on developments such as the Actuaries’ Code, and the need for a new focus on the competence of practising actuaries. It is not enough to tell practising actuaries they must be competent and must act ethically. The Profession needs to support and promote professional conduct by explaining what that involves in different practice areas, as it already does implicitly through its examinations and practising certificates, and through the CPD activities it develops for its members. And that includes making sure that practising actuaries can understand and monitor what is needed to comply with the principles and outcomes in the BAS’s new technical actuarial standards.

Perhaps the biggest challenge for the Profession is influencing quality controls for these processes within the working environment for actuaries. When the POB spoke to actuarial firms as part of a review published in 2008, we found many examples of good practice, which applied across a range of different organisations, but there was no consistent view of what was required. The POB has set out a number of features it expects to see, and has challenged the Profession to find a way of harnessing firms’ own quality controls to support the professionalism of members and the quality of their work.

Actuaries have traditionally been regulated as individuals. However, firms play a large role in the regulation of other professions. For example, accountancy firms are directly regulated by their professional bodies, and law firms and surveyors seek independent confirmation of the quality of their working environment. Other self-regulating professions will typically issue practising certificates to any member who is acting in a professional capacity, not just those who are performing roles that happen to be regulated by a statutory regulator such as the FSA.

A particular focus of our recommendations has been on actuaries who provide actuarial advice externally — actuarial consultants — since, unlike an employer, external clients cannot easily control the quality of an actuary’s work.

The Profession’s Corporate Plan for 2010/11 recognises and embraces these indicators of actuarial quality, as does the work of the FRC and other regulators. We welcome the Profession’s commitment to continuous improvement, and the maintenance of high standards measured against the FRC’s Actuarial Quality Framework. We would encourage actuaries and their firms to do the same.

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Quality controls for actuarial firms
The POB has suggested the Profession might look for:
>> A senior actuary or actuaries to provide professional leadership within the firm
>> Arrangements for handling conflicts of interest and confidential information
>> Controls on competence and quality control, such as checks on individual actuaries’ work
>> Management of customer relationships, including terms of references, complaints handling and compensation for shortcomings
>> Arrangements to support communications with regulators and whistle-blowing.

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Paul Kennedy is head of Actuarial Oversight at the Financial Reporting Council