FSA considers future role of appointed actuaries

The suggestion is just one of a number of options put forward by the regulator in the fifth and final Issues Paper produced as part of its With-Profits Review. The paper specifically considers issues of governance in with-profits funds but its ideas on the future role of appointed actuaries apply to all firms that write, or have written, long-term business.

The paper asks: should the FSA continue to recognise the role of the appointed actuary or should it instead rely on the responsibilities that the regulatory regime already places on the board of an insurance firm, with no explicit recognition of the role of the appointed actuary?

It also considers how the regime might otherwise be improved if the role of the appointed actuary is to continue to be recognised. It asks:

• Should steps be taken to reduce the scope for conflicts of interest? For example, should the appointed actuary be barred from also serving as a director of the firm?

• Should a firm's board be required to arrange for an independent review of the work of its appointed actuary? This review might be provided by another external actuary or by the FSA itself.

• Should appointed actuaries be required to produce an annual Financial Condition Report for the board? If so, should this report be provided to the regulator or made public?

• Should measures be introduced to address the risk that the appointed actuary (particularly those who act as appointed actuary for several firms) does not have sufficient time and resources to fulfil his responsibilities? For example, would it be appropriate for the FSA to issue guidance on the number of appointed actuary appointments an individual may hold?

The paper goes on to explore some of the further issues arising from each of the questions and suggests how they might be addressed.

John Tiner, FSA managing director, said:

"The role of appointed actuary is an unusual one in that specific regulatory responsibilities are placed on the holder of the role rather than on the firm as a whole. Both the Baird and Corley reports into Equitable Life have raised questions about this position so it is timely to consider whether changes need to be made, as part of our wider review of insurance regulation."

The full issues paper, titled Governance of With-Profits Funds and the Future Role of the Appointed Actuary, is available on the Publications area of the FSA website at http://www.fsa.gov.uk. Responses are requested by April 12 2002. If the FSA considers that changes in requirements relating to the appointed actuary are necessary, it will consult on draft proposals. Any such consultation would include a cost benefit analysis of the proposals.

Notes for editors

1. The FSAs with-profits review was announced in February 2001 and is looking at the prospects for change in four main areas:

   • the extent of discretion available to management over the operation of with-profits funds and how that discretion is exercised;
     

   • improvements in the transparency of the published information in consumer literature and in the regulatory returns about with-profit funds;
     

   • better information for policyholders about the progress of their investments, including improvements in the language used to describe returns, and greater clarity about investment strategies and the way in which terminal bonuses are determined; and
     

   • the principles which underpin the requirement for firms to have due regard to the interests of customers and to treat them fairly.

2. In the first phase of the Review a number of activities were undertaken to gather information and seek input to the scope of the Review. These included: publication of an initial Discussion Paper; an Open Meeting held on 18 June 2001; a programme of visits to interested external parties; and consumer research. The issues arising have been taken forward in a further series of Issues Papers covering the key themes under the Review: Procedures for Handling Inherited Estate; Disclosure to Consumers, Regulatory Reporting; Discretion & Fairness and Governance of With-Profits Funds and the Future Role of the Appointed Actuary. A final report will be prepared by Spring 2002.

3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000; maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.