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16 March 2005

Sir Derek Morris recommends that the financial reporting council should oversee the regulation of the actuarial profession

Sir Derek Morris has today published his final report on the actuarial profession in the UK. The review focused on three broad areas: the regulatory framework for the actuarial profession; the level of choice and competition in the market for actuarial services; and the future role of the Government Actuary and the Government Actuary’s Department.

On the regulatory framework the review concludes that independent oversight of the actuarial profession’s regulation is the best way to combine professional actuarial input into the regulatory framework with sufficient independence from the profession to provide the necessary protection and assurance for the public. The review’s central recommendation is that the regulation of the actuarial profession should be subject to independent oversight by the Financial Reporting Council (FRC). The FRC should:

  • create an Actuarial Standards Board, as a new operating body of the FRC, to set actuarial professional standards; and 
  • oversee the regulatory and other activities of the actuarial professional bodies – including their role in: setting ethical standards; administering education and CPD; monitoring of compliance with professional standards; and in administering disciplinary procedures.

The review also makes a number of specific recommendations to:

  • address the conflicts that surround the role of the Scheme Actuary;
  • encourage the profession to broaden its provision of education – working closely with universities and employers; and 
  • ensure clear whistle-blowing duties and compliance with professional standards so that the wider public interest is protected.

With respect to the actuarial services market, the review has concluded that there is a reasonable level of choice and competition in the market for actuarial services for all but the largest pension funds but that there is inadequate market-testing and scrutiny of actuarial advice. The review recommends measures to:

  • encourage users to market test and tender separately for the elements of their actuarial advice; 
  • increase user knowledge and understanding; and 
  • improve the quality of the information that actuaries communicate to users and how they do so. 

In relation to the Government Actuary’s Department the review recommends that

  • the Government should increase choice and competition for users of actuarial advice to public service pension schemes and should transfer a limited number of functions to other government departments in order to achieve more effective integration of the services provided; 
  • the Government Actuary should continue to report to Ministers and Parliament on the National Insurance Fund; and 
  • the Government should consider converting the Government Actuary’s Department into a trading fund.

Sir Derek Morris said:

“The review has no reason to doubt that the overwhelming majority of actuaries in the UK are dedicated, skilled professionals providing important and useful advice, with commitment, integrity and a strong sense of duty. However, the review has also identified a number of quite serious problems faced by the profession in the UK and sets out a challenging agenda for reform for the profession.

I believe that the proposals which have emerged from my investigation into the Government Actuary’s Department and the Government Actuary will provide public sector users of actuarial services with the right framework within which to work; and at the same time will allow the Government Actuary’s Department to build on its historical strengths in order to meet its continuing aspirations effectively.

The review makes a number of recommendations to ensure that there is an effective market for actuarial services and recommends that the regulation of the actuarial profession should be subject to independent oversight by the Financial Reporting Council. I believe that there is widespread support for these proposed changes. In particular, the actuarial profession has responded in a very constructive way, pursuing reforms that it has itself seen as necessary in the light of the Penrose Report. The response of the statutory regulators and the Financial Reporting Council has also been very positive. This is very much to be welcomed.

The actuarial profession is, in my view, at something of a crossroads. It has for a variety of reasons come under quite intense scrutiny, not least in this review, and will inevitably face change. With strong leadership, I believe that the profession can move forward, on the basis of reforms proposed in this review, to fulfill a wider remit in the field of financial risk analysis, bringing expertise, robust standards and the benefits of professional conduct to both traditional and new sectors.”

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Notes for editors

1. In March 2004 the Government asked Sir Derek Morris to conduct a wide-ranging independent review of the UK actuarial profession, following Lord Penrose’s Inquiry into the Equitable Life. The Report of the Equitable Life Inquiry can be accessed through HM Treasury's website:.

2. The review recognises that there have been a number of recent developments by the Government, the statutory regulators and the Institute and Faculty of Actuaries to address some of the shortcomings identified above and the review has taken these into account in proposing policy options to address these issues.

3.  The review received over 100 responses to its initial consultation document and around 70 responses to its interim assessment and held many consultation meetings in the UK and abroad.

4. The full terms of reference for the review are to:

Consider what professional and/or other regulatory framework would best promote recognised, high-quality and continuously developing actuarial standards, openness in the application of actuarial skills, transparency in the professional conduct of actuaries, accountability for their actions and an open and competitive market for actuarial advice in the UK;

In doing so:

  • Take into account developments in the actuarial profession, in regulation, and in the financial services market, in the UK and abroad; 
  • Examine the roles of actuaries in the financial services sector, including in providing actuarial opinions in relation to audited accounts; 
  • Build on the work of recent government and regulatory initiatives; 
  • Examine the relationship between the Government Actuary’s Department and the actuarial profession and with other parts of government.
  • Recommend a framework that will be independent in representing the public and consumer interest, and be accountable, flexible, transparent, and no more burdensome or restrictive than is clearly justified.
  • Make recommendations on the future role of the Government Actuary, the functions of his Department and its future institutional status.

5.  The Financial Reporting Council (FRC)

  • sets, monitors and enforces accounting and auditing standards; 
  • oversees the regulatory activities of the professional accountancy bodies, and regulates audit; and 
  • promotes high standards of corporate governance.

The membership of the Council includes wide and balanced representation at the highest levels from the business, investor, professional and other communities interested in corporate reporting and governance.

6.  Media enquiries should be addressed to Will Straw in the Treasury press office on 020 7270 4420.

7.  Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk

8. This press release and other Treasury publications and  information area available on the Treasury website. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.

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