Most would be forgiven for not quite making it through all 232 pages of the UK Government’s White Paper on ‘Restoring Trust in Audit and Corporate Governance’ - but those who persevered to pages 198 to 205 will have seen that, in addition to a new regulatory system proposed for the audit and accounting professions, there are changes planned for the way in which UK actuaries will be regulated, blogs Emma Gilpin, Head of Regulatory Policy, IFoA.
The proposals for actuarial regulation arise by virtue not of any particular issues with the actuarial profession or its work, but because the body that currently sets UK technical actuarial standards and provides independent oversight of the IFoA’s UK regulation of its members (the Financial Reporting Council – ‘FRC’) is, it is proposed in the White Paper, to be replaced by a new body: the Audit, Reporting and Governance Authority or ‘ARGA’. That means there is a need to come up with alternative regulatory arrangements for UK actuarial regulation.
The proposal to introduce ARGA follows an earlier review by Sir John Kingman into the FRC, in which he also recommended that further work be carried out to look at the appropriate arrangements for actuarial regulation.
The White Paper proposes a new arrangement whereby ARGA would, broadly speaking, take on the current actuarial regulation responsibilities of the FRC: it would provide oversight of the IFoA’s regulation; it would set UK technical actuarial standards; and it would operate an actuarial disciplinary scheme for ‘public interest cases’, but (importantly) with some differences:
The IFoA has submitted a response to the consultation that is cautiously supportive of ARGA taking on a role in relation to actuarial regulation and supports the need for ARGA to be given proportionate and well defined powers in order for that regulatory role to be effective. It also sees it as a welcome opportunity to introduce clarity to the regulatory and oversight roles of ARGA.
However, our response also raises some real concerns about how the proposals will work in practice, depending on the detail of how they are implemented (which is not currently set out in the White Paper).
In particular, there are concerns about the scope of actuarial activity that will be covered by ARGA’s enhanced technical standards role, how ARGA will identify the group of individuals or entities that are within scope of its monitoring and enforcement systems, and how proposals for entity regulation would avoid duplication with existing statutory regulation already applying to many of the organisations in which actuarial work is carried out.
The IFoA’s response also flags a risk that actuarial regulation will suffer from being an afterthought to ARGA’s core remit of audit and financial reporting and that this might well lead to a failure to grasp the broad nature of actuarial work and the wide range of industries in which actuaries operate.
The IFoA has set out a number of suggestions as to how the proposals could work including identifying the scope of ARGA’s technical standards role by reference to a published list of key, public interest actuarial activity and requiring that all individuals engaged in those activities are subject to ARGA’s regulation.
It also proposes that ARGA’s enforcement and monitoring could be focused on key responsible role holders and given effect through an authorisation or registration system, with those in post required to have a suitable actuarial qualification.
It also questions the appropriateness and practicality of a new actuarial entity regulation system and proposes, instead, that ARGA is given specific powers to compel cooperation of entities to complement their monitoring and enforcement roles.
It is also suggested that instead of ARGA and the IFoA operating two substantially similar but separate disciplinary schemes, there could be one IFoA operated scheme, which is subject to enhanced oversight by ARGA.
More detail on the IFoA’s proposals are set out in the full response
There is a great deal of scope for these proposals to lead to an improved, proportionate, effective regulatory system that really focuses on areas of most risk to the public but this will very much depend on the detail. The risk is, if those details aren’t given proper attention, we will end up with a system that is ineffective, unworkable and fails to deliver on the public protection it is designed to achieve.
You can download and read the full policy paper 'Restoring trust in audit and corporate governance' via the gov.uk website.
