Regulation of actuarial roles under SII regime

A range of controlled roles are required under Solvency II; the risk management function, internal audit function and the actuarial function. A number of requirements, frameworks and standards are already set to apply to these roles, for example, in the form of:
  • rules in the Solvency II Directive and in guidance from EIOPA
  • regulatory framework for firms established by the PRA
  • technical standards set by the Financial Reporting Council, applicable to actuaries in the UK

In addition to these, the Institute and Faculty of Actuaries (IFoA) is consulting on a regulatory framework to support the roles that UK actuaries hold under Solvency II.

The IFoA is responsible for setting an ethical framework for its members, wherever in the world they are working, and ensuring a robust disciplinary scheme is in place.  On this basis, it is felt that a suitable regime needs to be established, particularly given the significant public interest associated with these roles.

The intention is that it that the chosen regime will provide interested stakeholders with evidence that IFoA members undertaking controlled roles are sufficiently equipped to do so.  This may of particular help to smaller insurers who will need to assess the suitability of candidates in fulfilling the requirements associated with the Solvency II roles.

It is thought that the existing practising certificate regime used in life assurance could form the basis of the new regulatory framework and be extended to also cover general insurance. This regime would require holders of the controlled roles to possess a relevant practising certificate.

The IFoA presents three options that could be used to demonstrate that an individual is eligible for a practising certificate:

  1. Technical Competency Standard – members would need to meet a test of experience and/or technical competence
  2. Professional suitability – members would be required to meet a character-based standard, this could include a criminal record check, credit check, disciplinary record check and/or an interview, this standard could also specify core professional competencies that would need to be demonstrated, such as self-assurance and influencing skills
  3. Generic qualification – members would need to hold a 'qualification' of generic nature

Respondents’ views are sought on the options, including the criteria to be met under each, and whether:

  • different approaches should be applied for the regulation of each of the roles – actuarial, risk management and internal audit;
  • a combination of options would be appropriate;
  • the requirement should be compulsory or voluntary; and
  • additional CPD requirements should be introduced for members holding Solvency II role practising certificates.

Whilst a practising certificate regime should be beneficial in providing ready demonstration of a high level of competence to insurance company boards and the PRA, there is a key risk acknowledged by the IFoA. This is the risk that a higher standard is required of IFoA members compared to members of other professional bodies.

This is perhaps more relevant for the risk management and internal audit functions, where there is greater scope for appointing non-actuaries, and the requirement for an actuary to hold a practising certificate could act as a disincentive to appointing one due to additional costs and administration.

Consequently, the IFoA informally proposes a fourth option:

  1. Reliance on professional obligations – members performing Solvency II roles would be obliged to meet all current professional obligations, such as the Actuaries’ Code, relevant Actuarial Profession Standards (APSs) and Technical Actuarial Standards (TASs)

If this is the preferred option, consideration would be given as to whether revisions to existing or new APSs and TASs are necessary.

There will be the opportunity to discuss the proposals at meetings in London and Edinburgh prior to the closing date for responses on 13 June 2014.

Our comment:

We believe that some key questions are raised by the proposals for an IFoA regulatory framework in respect of Solvency II controlled roles, these include:

  • Do the options proposed meet the IFoA’s stated aims, which are that the framework should support the functions and be proportionate, risk-focussed and suitably targeted?
  • Should the scope of the regulatory framework extend beyond the actuarial function and include all the controlled functions?
  • Will another framework just provide an additional set of requirements for insurers to consider, without providing much additional benefit?

The consultation paper can be viewed on the IFoA website