Rules of engagement

The Actuary invited Ann Muldoon, director of actuarial policy at the Financial Reporting Council (FRC), and Ben Kemp, general counsel and director at the IFoA, to discuss how the two bodies have worked together since 2006 to regulate the profession, and to explain the latest developments and big issues on their agenda.

Describe the regulatory roles of the IFoA and the FRC
Ben Kemp (BK)
We aim to discharge our public interest responsibility by regulating appropriately but proportionately all of our members, both in the UK and overseas. This begins with the qualification framework, the entry point to the profession, and includes the setting of standards and guidance as well as professional support and training and, if necessary, enforcement. In relation to the UK, we share the standard-setting responsibility with the FRC, which issues technical standards, while we are responsible for ethical standards.

We aim to be outcome-focused and risk-based in our regulatory approach. This, in some ways, is more challenging for both the regulator and the regulated but it does, we believe, lead to more effective, targeted and more proportionate regulation, while allowing for and encouraging the exercise of professional judgment.

We have a dual role in serving and supporting our members. These objectives are complementary because serving the public interest is also to the collective benefit of the profession.

Ann Muldoon (AM)
The FRC is responsible for setting technical actuarial standards (TASs), which sit alongside the ethical standards and code of conduct that the IFoA sets. We provide oversight of the profession and ensure that it can regulate itself in an appropriate manner.

Our work is governed by the reliability objective.

It effectively sets a requirement; we seek to ensure that users of actuarial information can place a high degree of reliance on that information. That is the overarching principle that guides the standards that we develop and should guide individuals on how they interpret and apply them.

The FRC has a much wider remit besides actuarial standards, and was deemed an appropriate home for setting technical actuarial standards because of its responsibilities in regulating other financial bodies, such as accountants and auditors.

Why do we set standards, and what's changing?
BK) The overarching standard is the Actuaries' Code.
It sets out our core professional principles - for example, integrity and the importance of effective communications and competence - really core values. We are about to launch a review of the Actuaries' Code, to ensure it remains up to date and fit for purpose.

We set ethical standards to support and amplify the principles in the Code - for example, APS X2 (Actuarial Profession Standard Cross Practice 2), on peer review.
Below that, we have non-mandatory guidance, educational and training material.

We engage actively with supranational associations in relation to the development of international model standards, supporting the global recognition and development of actuarial science, including its increasingly crucial role in developing markets around the world.

AM) The FRC is more focused on the TAS framework for actuaries working in the UK. Under our current framework, we have three generic technical standards: data; modelling; and reporting. Then we have specific standards on insurance, pensions, funeral plans and transformations. The year before last, we consulted and created a new overarching framework. The outcome of this consultation is to replace the three generic technical standards with TAS100, which will apply to all areas of technical actuarial work, and will include some information that is currently in the specific standards.

In deciding on the scope of the specific standards, we applied a risk-based approach. While we may have done that on an informal basis in the past, we've formalised it, and it's also part of the consultation paper we will be issuing. We've tried to identify areas of technical actuarial work that pose a high risk of public interest. For example, one of the areas of work within the insurance TAS relates to the work of an actuary supporting an auditor, and we put in there the provision to apply a sense of scepticism, which is not always necessary or applicable to day-to-day actuarial work. As part of the review, we plan to remove the specific TAS on transformations and will be including relevant parts in the TAS100.

We'd like to encourage everybody to participate in the consultation. It will be open for three months until around the middle of August.

BK) We have engaged actively with the FRC in the development of its consultation proposals. We propose to produce guidance in relation to TAS100, and welcome input from practitioners as to what they would find useful.

What role does discipline play in upholding standards?
BK) The reputation of - and trust placed in - IFoA members is heavily influenced by the rigour of our professional examinations, our ethical code and, by extension, how we deal openly, promptly and fairly with any complaints or breaches of those standards.

Our disciplinary process must command the confidence of both the profession and the public. In the modern age, confidence and respect in a profession must, rightly, be earned; the era of deferential subservience is gone. Where we need to take enforcement action, we have a process that involves lay people as well as actuaries sitting on our independent tribunals. We attach great importance to the fairness and transparency of the scheme - a process that we believe helps install public confidence in the IFoA as a regulator, and in the profession as a whole.

How do we support actuaries working outside the UK, beyond the FRC's remit?
BK) We aim to support our members, wherever they practise, in fulfilling their professional responsibilities. We draft our standards from a global and not parochial perspective. We leverage technology to deliver professional skills and continuing professional development around the globe.

We are a forward-thinking, progressive regulator, with an eye to innovation. A good example, which is relevant to the domestic as well as international market, is the Certified Actuarial Analyst (CAA), our new technical-level professional qualification. The CAA will help professionalise a whole new segment of the workforce. Such innovation, we believe, is good for business, good for employees and, importantly, good for the public interest.

AM) The International Actuarial Association (IAA) produces the International Standards of Actuarial Practice (ISAPs), and the Actuarial Association of Europe (AEE) produces the European Standards of Actuarial Practice (ESAPs). They issue model standards and appeal to all types of actuarial association. Because of that, they contain quite a lot of detail that isn't quite in line with the way we look at actuarial regulation in the UK.

However, ISAP 1 is the overarching main standard issued by the IAA, and we believe that the accommodation of TAS100, the Actuaries' Code and the APS X2 together will provide substantial consistency with their standards.

BK) We expect to publish a standard called APS X1 later this year. This will set out, in a single source, the standards that the IFoA expects its members to apply, wherever in the world they are practising. We're trying to achieve a relatively simple standards framework, which is clear and proportionate internationally, upholds the public interest, but does so by allowing flexibility and innovation.

What role do you think organisational culture has in maintaining standards?
AM) This is important, and at the FRC we are actively engaging in a review of culture. Although we do have the UK Corporate Governance Code, one of the questions is: to what extent can you tick all the boxes of the code and still have some challenges? So we are currently working on a culture project and reporting on it later this year.

BK) It might be argued that one of the root causes in the failure of financial institutions is related to organisational culture. We ignore this issue at our peril.

We have launched the Quality Assurance Scheme (QAS), for which we recently had our first set of awards for newly accredited firms. What we are trying to do is to promote a culture within organisations that encourages and facilitates quality and professionalism. We have had a very positive response.

The QAS is currently open to actuarial employers in the UK, although we are considering how a similar model might also be relevant elsewhere. The independent assessment team comes to your office and engages with you and your staff - it is not 'tick box'. The process is periodically renewed.

Does regulation increase the risk of 'group think'?
AM) The Joint Forum on Actuarial Regulation (JFAR), a group chaired by Stephen Haddrill from the FRC, was formed with representatives from the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Pensions Regulator (TPR), the IFoA and the FRC. One of the key roles of the group is to look at where actuaries' work poses a risk to the public interest. It published a discussion paper entitled Joint Forum on Actuarial Regulation: A Risk Perspective two years ago, and, as a result, identified three areas where extra work was needed, including: transfers from DB-DC schemes; an investigation into group think; and a review of general insurance provisioning.

BK) The IFoA had the privilege of leading the JFAR's work on group think. We took the question of public interest risk to our practice boards, and the phrase 'herd-like behaviour' kept coming up. It can be both a force for good, in terms of common standards across a profession, but also potentially an inhibitor, in terms of the exercise of individual judgment.

For us, group think is the unconsidered following of established protocol - it's the unconsidered part that can be a concern. A couple of interesting factors here are the role that regulators can play, and, again, the effects of organisational culture. There is some reason to think that a more prescriptive rules-based approach to regulation can encourage group think.

When actuaries seek work in wider fields, some perceive us to be highly regulated, which could make us uncompetitive. How do we address this?
BK) This is a legitimate challenge. We need to be aware of it, but without compromising our core values of quality and professionalism. Our members trade upon the basis of a badge of quality that we seek to uphold, without creating a disproportionate compliance burden.

AM) People are put into positions on the merit of their experience and the qualities they bring. Actuaries are no different. They are being appointed, so organisations must be attaching a value to the experiences of actuaries.

If you weren't doing technical actuarial work, TAS wouldn't apply. The Actuaries' Code, particularly in risk roles, with its ethical standards, would be even more important - and so having a strong professional code should actually enhance your suitability and support you in doing that role. It comes back to your mindset. Do you see it as regulation, or do you see it as part of what makes you an actuary and part of the actuarial profession?

BK) Where we see actuaries getting into new areas, we see their skillset being appreciated and recognised, whether that is in banking or healthcare. It's not the regulation that is usually the barrier - it can be the lack of understanding of the value an actuary brings.

What does success look like for you over the next year?
AM) We'd like to get the final TAS package published, ready to go by the end of the year. We will shortly be working on a consultation on the oversight and the future regulation of the profession at the end of 2016.

Again, 10 years on from the Morris Review, we need to reflect and see if the framework we have in place is the right one for providing oversight. More generally, success for me is that the standards we produce are seen as the minimum standards to work to, rather than being a burden on actuaries.

BK) The QAS is obviously a big one. I'm excited because it's really gaining traction. We believe in regulation through engagement. We are not a regulator that sits in an ivory tower. Regulation starts with the individual, with self-responsibility. I am excited by the dialogue we are having with people all around the world, in relation to professional ethics. People are talking to us about professionalism - that is exciting and there is more of it coming. I think success is when all of our standards are joined up and easy to use and understand.

TAS consultation

Reponses to FRC's consultation on Technical Actuarial Standards are invited by 5 August 2016 by email to

[email protected] for insurance

[email protected] for pensions

[email protected] for funeral plans

or by post to, Robert Inglis, Financial Reporting Council, 8 ^th Floor, 125 London Wall, London EC2Y 5AS