I am currently staring at a bizarre letter from the Financial Reporting Council, saying that the issues I have raised about misvaluation of guarantees do not fall within the purview of the FRC, for the FRC is limited in its oversight role of the Institute of Actuaries, ‘as per recommendations made in the Morris Review‘.
That’s extraordinary. The purpose of the Morris Review was to address the many problems raised by the Equitable Life affair, fundamental to which was the importance of the correct valuation of embedded guarantees. The review recommended , according to the FRC’s own website,
.. the introduction of a new regime of independent oversight of the regulation of the profession by the FRC. This would include independent standard setting, oversight of compliance with technical and ethical standards, actuarial training and CPD; more effective scrutiny of actuarial advice; and clearer lines of accountability of actuaries to regulators, to the profession and to clients and employers.
Right. So when I complain to the FRC that firms still seem incapable of valuing guarantees correctly, their response is that they are limited by the arrangements introduced to ensure that firms do value guarantees correctly.
Something seems to have gone badly wrong.
Of course, their point may be that the arrangements put in place were never sufficient in the first place. That seems to be the conclusion of the more recent Kingman Review, which concluded that in the area of oversight of regulation of the actuarial profession, ‘the FRC’s powers are limited or even non-existent, leaving it in the unfortunate situation of having been given responsibility without power’.
Kingman has recommended that the PRA ‘is a much larger repository of regulatory actuarial expertise than the FRC and would be best-placed to take on all the actuarial responsibilities currently vested in the FRC’. I shall discuss that idea tomorrow.