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Tuesday 3rd April 2012
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updated 5.13pm, Wednesday 29th April 2020
Paul Kennedy explains how the Financial Reporting Council intends to exercise its responsibilities for actuarial regulation and quality in the coming year
The Financial Reporting Council (FRC) is currently consulting on its draft work plan for 2012-13, which covers the existing work of the Board for Actuarial Standards (BAS), the Professional Oversight Board (POB) and the Accountancy and Actuarial Discipline Board (AADB).
The FRC has proposed an ambitious programme of activities, which includes seeking to evaluate the impact of BAS's technical actuarial standards (TASs), promoting the UK model for actuarial regulation overseas and in Europe in particular, and working with the Actuarial Profession to promote actuarial quality. The FRC would like your views.
2011 was a busy year for the FRC and its actuarial team. The BAS issued the last of its seven standards, which came into full force in October, and we undertook a targeted awareness exercise with actuaries and users of actuarial work to promote adoption of the standards.
We monitored the Actuarial Profession's own new ethical standards, and guides on whistle-blowing and conflicts of interest, as well as responding to an increased number of international consultations, including in Europe. We updated TM1 (which specifies the actuarial methods and assumptions to be used in statutory money purchase illustrations), and developed targeted questions for some of the principal users of actuarial work. Lastly, the FRC issued a joint consultation with the government on proposals to reform and restructure the FRC itself.
The FRC reform proposals, which were explained by Jim Sutcliffe in the December edition of The Actuary, generated more than 60 consultation responses and a decision is expected shortly. The proposals are intended to ensure a more effective, consistent, accountable and understandable regulatory approach across the FRC, with broader input on actuarial matters, which will in future be considered directly by the FRC board.
In planning for the future, all of these developments should put us in a better position to work alongside our FRC colleagues in accounting, audit and corporate governance, and to promote actuarial quality directly by:
Meeting the standards
The FRC will continue to maintain a set of actuarial standards and supporting materials that are fit for purpose. We want to ensure that actuarial practitioners meet the requirements of these. We also want to ensure that users are aware of the standards, and understand what they should expect from actuarial information.
Our first project is a review of TAS compliance statements. The review considers the approaches being adopted by practitioners to the requirement to state compliance, and seeks the views of users on the resultant statements. We aim to publish the findings in the first half of 2012.
The second is a preliminary assessment of the impact of the standards. TAS R came into force in April 2010, while some of the specific standards - on insurance, transformations and funeral plans - came into force only recently. Our review will start with pensions work in the second half of 2012 before extending to other areas.
An early area for scrutiny is the scope of the standards themselves. Does the scope of the standards remain appropriate, or should it be modified in the light of our preliminary impact assessment? We hope to publish some initial views in 2013.
Both the impact and the scope reviews will feed into our full review of the standards by 2014. During 2012/13, we will look to develop and publish a plan for this review.
A specific project for 2012 will be a consultation on bringing actuarial work on pension incentive exercises into the scope of the standards and whether they should include specific principles to be followed when providing actuarial advice on incentive exercises.
TAS maintenance
- Compliance statements
- Impact assessment
- Scope review
- Plan for full TAS review
- Pension incentive exercises
Affecting outcomes
International regulators are starting to develop actuarial standards and guidelines; for example, the European Commission and the European Insurance and Occupational Pensions Authority (EIOPA) are developing guidelines in relation to Solvency II, and the International Actuarial Association is developing international actuarial standards.
The FRC supports international actuarial standards that are proportionate, targeted, clear, principles-based and outcome-focused. We believe that guidelines on Solvency II should be consistent with our Reliability Objective and our Actuarial Quality Framework. We also want to ensure that international standards are compatible with TASs.
During the coming year, we will develop and publish our policy objective in seeking to influence other bodies' actuarial standards, and work with the Profession and other stakeholders to monitor and respond to external developments.
Influencing outcomes
- International standards
- Solvency II
- IORP directive
- FSA / pensions reforms
Research and promoting quality
Building on the FRC's Actuarial Quality Framework, we aim to ensure that the FRC and its stakeholders understand how the quality of actuarial information and actuarial practice can be improved to meet the needs of users so that we are all better placed to enable users to make good use of actuarial information.
One of our projects will explore the role of actuaries in risk management, identifying factors that contribute to high-quality actuarial information within risk management, and any practices that are issues for concern, considering the existing training of actuaries and the operation of actuarial standards.
Another project seeks a better understanding of the criteria and principles for fair treatment of pensioners, policyholders and other participants in pooled arrangements, and of the expectations of users and regulators on fairness. It will look at the work actuaries undertake in order to advise on fairness, and consider the training, skills and external support they are given to support them in providing such advice. The project will consider the effectiveness of standards, education and other regulatory interventions in respect of fairness.
Research and promoting quality
- Risk management
- Fairness
Actuarial oversight
On the conduct side, our work on actuarial oversight and discipline continues, and has its own priorities. For example, the FRC has an established disciplinary scheme for investigating public interest cases involving actuaries. We have commenced four investigations under this scheme, and have set aside a reserve for further activity in 2012/13.
Our oversight of the Actuarial Profession involves monitoring developments that may adversely affect public confidence in actuaries and assessing the extent to which its regulatory activities promote actuarial quality.
We have previously made a number of recommendations relating to the need for the Actuarial Profession to develop a comprehensive set of ethical and conduct standards; to review the nature and scope of professional regulation of practising actuaries, including reliance on quality controls at actuarial firms; to clarify the expected skills of practising actuaries; and to establish a framework for developing, maintaining and confirming professional competence.
The Profession is making progress on our recommendations; for example, with its work on whistle-blowing and conflicts of interest. We will continue to monitor this.
More details of our proposed work plan may be found on our website www.frc.org.uk, where we also intend to publish regular progress reports on our work during 2012.
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During 2012/13 the FRC will:
- Monitor the effectiveness of technical actuarial standards (TASs) by collecting feedback from practitioners, users and other stakeholders, and by carrying out impact assessments.
- Influence actuarial standard-setting in Europe and worldwide, drawing on the experience gained in developing and maintaining TASs.
- Research emerging issues and developing practices for which standards can contribute to high-quality actuarial work.
- Monitor the regulatory activities of the UK Actuarial Profession, in relation to its members, assessing issues that could affect public confidence in actuaries.
- Contribute to the continuing development of the EU Solvency II project, and participate in the development of a European approach to actuarial standards, building on our experience as one of the world's leading independent actuarial standard-setters.
Source: draft FRC plan for 2012/13
The FRC has proposed an ambitious programme of activities, which includes seeking to evaluate the impact of BAS's technical actuarial standards (TASs), promoting the UK model for actuarial regulation overseas and in Europe in particular, and working with the Actuarial Profession to promote actuarial quality. The FRC would like your views.
2011 was a busy year for the FRC and its actuarial team. The BAS issued the last of its seven standards, which came into full force in October, and we undertook a targeted awareness exercise with actuaries and users of actuarial work to promote adoption of the standards.
We monitored the Actuarial Profession's own new ethical standards, and guides on whistle-blowing and conflicts of interest, as well as responding to an increased number of international consultations, including in Europe. We updated TM1 (which specifies the actuarial methods and assumptions to be used in statutory money purchase illustrations), and developed targeted questions for some of the principal users of actuarial work. Lastly, the FRC issued a joint consultation with the government on proposals to reform and restructure the FRC itself.
The FRC reform proposals, which were explained by Jim Sutcliffe in the December edition of The Actuary, generated more than 60 consultation responses and a decision is expected shortly. The proposals are intended to ensure a more effective, consistent, accountable and understandable regulatory approach across the FRC, with broader input on actuarial matters, which will in future be considered directly by the FRC board.
In planning for the future, all of these developments should put us in a better position to work alongside our FRC colleagues in accounting, audit and corporate governance, and to promote actuarial quality directly by:
- Maintaining our existing standards, and monitoring and assessing their impact;
- Promoting our approach to other standard-setters, especially in Europe;
- Overseeing the Actuarial Profession's regulatory activities; and
- Working with the Profession and others on research and thought-leadership activities that promote high-quality actuarial work.
Meeting the standards
The FRC will continue to maintain a set of actuarial standards and supporting materials that are fit for purpose. We want to ensure that actuarial practitioners meet the requirements of these. We also want to ensure that users are aware of the standards, and understand what they should expect from actuarial information.
Our first project is a review of TAS compliance statements. The review considers the approaches being adopted by practitioners to the requirement to state compliance, and seeks the views of users on the resultant statements. We aim to publish the findings in the first half of 2012.
The second is a preliminary assessment of the impact of the standards. TAS R came into force in April 2010, while some of the specific standards - on insurance, transformations and funeral plans - came into force only recently. Our review will start with pensions work in the second half of 2012 before extending to other areas.
An early area for scrutiny is the scope of the standards themselves. Does the scope of the standards remain appropriate, or should it be modified in the light of our preliminary impact assessment? We hope to publish some initial views in 2013.
Both the impact and the scope reviews will feed into our full review of the standards by 2014. During 2012/13, we will look to develop and publish a plan for this review.
A specific project for 2012 will be a consultation on bringing actuarial work on pension incentive exercises into the scope of the standards and whether they should include specific principles to be followed when providing actuarial advice on incentive exercises.
TAS maintenance
- Compliance statements
- Impact assessment
- Scope review
- Plan for full TAS review
- Pension incentive exercises
Affecting outcomes
International regulators are starting to develop actuarial standards and guidelines; for example, the European Commission and the European Insurance and Occupational Pensions Authority (EIOPA) are developing guidelines in relation to Solvency II, and the International Actuarial Association is developing international actuarial standards.
The FRC supports international actuarial standards that are proportionate, targeted, clear, principles-based and outcome-focused. We believe that guidelines on Solvency II should be consistent with our Reliability Objective and our Actuarial Quality Framework. We also want to ensure that international standards are compatible with TASs.
During the coming year, we will develop and publish our policy objective in seeking to influence other bodies' actuarial standards, and work with the Profession and other stakeholders to monitor and respond to external developments.
Influencing outcomes
- International standards
- Solvency II
- IORP directive
- FSA / pensions reforms
Research and promoting quality
Building on the FRC's Actuarial Quality Framework, we aim to ensure that the FRC and its stakeholders understand how the quality of actuarial information and actuarial practice can be improved to meet the needs of users so that we are all better placed to enable users to make good use of actuarial information.
One of our projects will explore the role of actuaries in risk management, identifying factors that contribute to high-quality actuarial information within risk management, and any practices that are issues for concern, considering the existing training of actuaries and the operation of actuarial standards.
Another project seeks a better understanding of the criteria and principles for fair treatment of pensioners, policyholders and other participants in pooled arrangements, and of the expectations of users and regulators on fairness. It will look at the work actuaries undertake in order to advise on fairness, and consider the training, skills and external support they are given to support them in providing such advice. The project will consider the effectiveness of standards, education and other regulatory interventions in respect of fairness.
Research and promoting quality
- Risk management
- Fairness
Actuarial oversight
On the conduct side, our work on actuarial oversight and discipline continues, and has its own priorities. For example, the FRC has an established disciplinary scheme for investigating public interest cases involving actuaries. We have commenced four investigations under this scheme, and have set aside a reserve for further activity in 2012/13.
Our oversight of the Actuarial Profession involves monitoring developments that may adversely affect public confidence in actuaries and assessing the extent to which its regulatory activities promote actuarial quality.
We have previously made a number of recommendations relating to the need for the Actuarial Profession to develop a comprehensive set of ethical and conduct standards; to review the nature and scope of professional regulation of practising actuaries, including reliance on quality controls at actuarial firms; to clarify the expected skills of practising actuaries; and to establish a framework for developing, maintaining and confirming professional competence.
The Profession is making progress on our recommendations; for example, with its work on whistle-blowing and conflicts of interest. We will continue to monitor this.
More details of our proposed work plan may be found on our website www.frc.org.uk, where we also intend to publish regular progress reports on our work during 2012.
--------------------------------------
During 2012/13 the FRC will:
- Monitor the effectiveness of technical actuarial standards (TASs) by collecting feedback from practitioners, users and other stakeholders, and by carrying out impact assessments.
- Influence actuarial standard-setting in Europe and worldwide, drawing on the experience gained in developing and maintaining TASs.
- Research emerging issues and developing practices for which standards can contribute to high-quality actuarial work.
- Monitor the regulatory activities of the UK Actuarial Profession, in relation to its members, assessing issues that could affect public confidence in actuaries.
- Contribute to the continuing development of the EU Solvency II project, and participate in the development of a European approach to actuarial standards, building on our experience as one of the world's leading independent actuarial standard-setters.
Source: draft FRC plan for 2012/13
Paul Kennedy is the acting director of actuarial standards at the Financial Reporting Council
