Open letter to the IFoA's Regulatory Board

Dear Regulatory Board of the Institute and Faculty of Actuaries (IFoA)

This is an open letter. I will publish any response(s).

I commend the greater transparency you display compared to other IFoA Boards and Committees: as a general rule you seem to publish not just minutes or meetings, but the papers presented to the meetings. Other IFoA Boards and Committees should in my view follow your example, and the IFoA would be better managed as a result.

Having said that, I am writing because of some concerns I have about the way the Board has operated recently.

1 Late publication of minutes

Again I commend the Board on generally having been more prompt than most other IFoA Boards/Committees in publishing minutes. But over 6 months later, the minutes of your 5 July 2022 meeting have still not yet been published:

This lateness may be accidental, but deserves explanation please. I have drawn attention to this twice before (here and in the comment added here) and the IFoA is likely to be aware of this. (As an aside, an improvement would be for minutes - for all IFoA Boards and Committees- to be published shortly after each meeting, while still fresh in the minds of participants, rather than having to wait typically at least 3 months for approval at the next meeting.)

2 Why has the Regulatory Board never commented on the allegations of widespread cheating rings in India?

See the section headed "Allegations of online exam cheating rings operating again" in this article (from April 2022). One of the responsibilities of the Board is "overseeing the public interest regulatory aspect of the examination and admissions framework".

Yet I have been unable to find any reference to these allegations in the Board's published papers. Is the Board unaware of these allegations? If yes, then shouldn't the IFoA have alerted the Board to them? If no, then why the complete absence of comment?

The continuing silence from the IFoA on this matter is unsatisfactory, not least because it gives credence to one of the allegations being made, namely that the IFoA has been reluctant to discipline the ringleaders for fear of upsetting employers. I refer to other concerns arising from this conflict of interest below.

3 Does the Board support the IFoA's stance with regard to its duty of candour in the Judicial Review?

Papers will soon be appearing before a High Court judge in which I claim that the IFoA failed to discharge its duty of candour to the Court, by failing (on multiple occasions since January 2022) to notify the Court and me of planned changes to its regulatory appointment process.

The principal ground of my judicial review was that the IFoA's disciplinary process was insufficiently independent of it because of the "significant link between the IFoA and the RAC (Regulatory Appointments Committee)".

The IFoA has argued in the Judicial Review that there was no want of independence in its disciplinary scheme and in particular in its regulatory appointments process.

It was not until 6 October 2022 that the IFoA disclosed (and not directly, only via publication of the June 2022 Council minutes on its website) that it had made significant changes to its regulatory appointments process. In particular the significant link between the IFoA and the RAC has been removed.

Several documents have since come to my attention from which it is clear that while failing to disclose the changes to the RAC to me or to the Court, the IFoA presented the changes internally (including to the Board) as increasing the independence of the process.

An example is 5.1 of the Reg Board's April 2022 minutes (emphasis added):

The review of the regulatory appointments process continues to progress with an aim that the process will be more independent and streamlined.

Is the Board happy with the IFoA's decision not to inform me and the Court that these changes (which directly addressed the principal ground for bringing the judicial review, and so were clearly relevant) were being planned and indeed happened? (Given that the IFoA is clearly conflicted with regard to the question as to whether its behaviour was proper, I suggest the Board obtains independent professional opinion rather than relying on internal IFoA advice).

I hope you agree that the IFoA, as an organisation claiming to regulate professionals, should not only comply with the law, but be seen to do so without question. To me, the IFoA's behaviour has been questionable in this case.

4 Why the unexplained volte-face with regard to the appointment of a Council member on Regulatory Board?

The July 2020 Executive Update to the Board paragraph 8 includes (emphasis added):

?"The IFoA’s Management Board has now approved changes that were proposed by the Board in relation to its composition, including the proposal to have a 50/50 split of actuary and non actuary members and the requirement that members of Council will not be appointed to sit on the Regulation Board and vice versa."

Yet this requirement has not been carried out in practice: as of January 2023 Council still appoints a member to the Regulatory Board. Please would you explain why?

5 Why has the Regulatory Board never issued any Risk Alerts about Price Walking/Loyalty Penalty or Leveraged LDI (Liability Driven Investment)?

The Board has issued Risk Alerts about several topics, including climate change, in respect of which there have as yet been no scandals involving actuaries. Yet so far it has failed to issue any Risk Alerts in two areas with significant work by actuaries where there have been multi-billion pound losses to the public:

• The loyalty penalty / price walking scandal in which millions of older (or otherwise vulnerable) loyal home and motor insurance policyholders were overcharged a total of at least ï¿¡5 billion.
• The recent LDI pension scheme defined benefit crisis in which the Bank of England was forced to intervene to prevent a financial meltdown.

What is the point of insurance actuaries' duties to comply with the Actuaries' Code (including compliance, impartiality, speaking up and clear communication) if despite the duty to Treat Customers Fairly, millions of insurance policyholders were overcharged and in many cases misled as to the fairness of the premiums they were charged? Didn't insurance actuaries fail to manage conflict of interests (between policyholders, and to balance their duty to policyholders and regulators with their duty to their employer)? Why did none speak up despite a situation which the Financial Conduct Authority said led to significant harm?

In my view, losses in the two areas above could have been prevented (or at least significantly mitigated) had the IFoA (and its boards and committees including the Regulatory Board) not neglected its core areas of insurance and pensions by focussing too much on an attempt to open up a new market for actuaries in the area of climate change. Did the IFoA manage its own conflicts of interest appropriately: was it reluctant to stop the loyalty penalty price walking practice for fear of upsetting major actuarial employers?

6 Why has the Board been silent on continuing problems with the exam system?

The following are areas which students (approximately half the IFoA's membership) regularly (and reasonably in my view) complain about, yet, (despite its duty to oversee the exam system's operation in the public interest) the Board never seems to mention these in its papers:

• the continuing allegations of cheating rings (exacerbated by the IFoA's practice of holding the same exams at different times) (already mentioned above)
• the frequency with which the IFoA's website still crashes on exam results day (despite being "new and improved" as stated by the IFoA Chief Executive). Has the IFoA still not moved to a cloud-based system, which would be automatically scalable?
• the strong time pressure element in the exams. This is something that actuaries rarely face in their work (with the exception of mergers and acquisitions).
• the lack of transparency in how pass marks are set. This (together with the strong time pressure element) perpetuates the suspicion among many students that the exams are primarily designed to limit the flow of qualified actuaries, when they should be an objective test of real life ability to do actuarial work.

The continuing silence from both the IFoA and Reg Board on the above topics reinforces the impression that students don't count (because they don't have a vote). Don't students deserve to have the above problems fixed? Or at least, if fixing them is so difficult, a satisfactory explanation as to why?

I look forward to your early reply. I hope you accept that all the above points are relevant to the public interest and the continuing good functioning of the Board.

Patrick Lee

Former Council and Management Board member. FIA 1990 to September 2020.