Resource material for the Actuaries' Code

Section 3 - Impartiality

I work for a small pension consultancy which primarily provides advice to Trustees of final salary schemes and sporadically advises employers.  Our advice to employers generally relates to the production of results for the company’s report and accounts but we do occasionally provide other advice e.g. one client asked us to recommend steps to reduce costs and risks associated with the scheme.

In all our advice, we act impartially and in our clients’ best interests.  We are not swayed by our own interests, our company’s interests or the interests of other clients.  Additionally, we have a general policy for someone other than the Scheme Actuary to provide advice to the employer.  We do not have a system of Chinese Walls in place. Is our approach a reasonable one under the Actuaries’ Code?

As a general rule, the Actuaries’ Code does not rule out advising both the Trustees and the employer, however, you must examine each engagement on a case-by-case basis.  In particular, paragraph 3.1 states: “Members will ensure that their ability to provide objective advice to their clients is not, and cannot reasonably be seen to be, compromised”.   So that members satisfy the “cannot reasonably be seen to be” requirement, you must assess each case on its own merits and review regularly to ensure that a potential conflict has not arisen during the course of the engagement.

You say that you always act impartially, in your clients’ best interests and are not swayed by competing interests.  However, this will only be demonstrable if the circumstances of each case are taken into account.  Both you and your clients need to be satisfied that there is no conflict in the particular circumstances.

The Actuaries’ Code does not allow for a blanket approach to be taken to all client relationships and, in many cases, such as the situation you describe, it may be perfectly possible for the member to meet the Code’s requirements.  Nonetheless, there is a need to be vigilant and regularly review the circumstances on a case-by-case basis and during the course of the engagement.

Paragraph 3.2(b) of the Actuaries’ Code states that a conflict of interest arises if a member’s duty to act in the best interest of any client conflicts with the interests of the member’s firm. Does this mean I only need to concern myself with the clients with which I have some connection or do I need to consider all clients within my firm, including clients which might be associated with different offices of my firm in different countries?

Like the law, the Actuaries’ Code can only be definitively interpreted by an appropriate tribunal in the context of a particular case’s circumstances.  As the Actuaries’ Code is principles-based, members are required to use their professional judgment in determining how to apply the Code’s principles in any one particular context.

However, in relation to conflicts of interest, we would usually expect the member’s firm to have compliance procedures in place with guidance as to how they expect conflicts of interest, which might affect the firm (whether in the UK or in an overseas office) and clients of the firm, to be managed.

You should also be aware that paragraph 3.3 of the Actuaries’ Code needs to be read in conjunction with the requirements in paragraph 3.2 which notes that “Members will take reasonable steps to ensure that they are aware of any relevant interest, including income, of their firm.”

At Professionalism Events run by the Actuarial Profession, we encourage members to keep a trail of evidence which supports decisions made at any particular time, paying particular attention to outline how they formed the view that the steps they took were reasonable in all the circumstances.  As to what amounts to “reasonable” steps; we cannot advise on this – this would be a matter to be determined by a disciplinary tribunal in relation to a specific case.  However, any tribunal is likely to:

• ask questions to determine the steps the actuary took to establish whether or not a conflict existed;
• assess compliance with any compliance/other policies in place regarding dealing with conflicts at the firm at the time;
• establish if, and how, any conflict/perceived conflict was managed.

Any evidence which an actuary can provide in support of any of these points would therefore, be looked upon favourably.

I was having a look at paragraph 3.2 of the Actuaries’ Code which states that: "A conflict of interests arises if a member's duty to act in the best interests of any client conflicts with:

    (a) the member's own interests, or
    (b) the interests of the member's firm, or
    (c) the interests of other clients."

In terms of section 3.2(c), it seems to me that it could be interpreted on two levels: one would be to concern oneself with the clients with which the individual has some connection while the other would be to open it out and consider all clients within the firm that employs the individual. 

Is any clarification of this point given in the Professionalism Courses or anywhere else?  From my initial thinking I can see practical problems with the second interpretation in that it would require the individual actuary to have knowledge of all the connections that a firm might have including those in offices in other countries.

On reflection, your query would appear to focus on the interpretation of 3.2 (b) which would extend to clients of another member of the firm, as you question whether “…the individual actuary would require to have knowledge of all the connections a firm might have, including those in other countries.”

The Actuaries’ Code can only be definitively interpreted by an appropriate tribunal in the context of the circumstances of a particular case.  As a principles-based Code, members are required to make a professional judgement on how to apply the principles of the Code in any particular context.

With regard to conflicts of interest, one might expect the member’s firm to have compliance procedures in place with guidance on how they expect conflicts of interests, which might affect the firm and clients of the firm, to be managed. Also, paragraph 3.3 of the Actuaries’ Code  which states: “Members will take reasonable steps to ensure that they are aware of any relevant interest, including income, of their firm" needs to be read in conjunction with the requirements under paragraph 3.2.

At Professionalism Events, members are encouraged to keep a trail of evidence in support of decisions made at any particular time, paying particular attention to define how they formed the view that the steps they had taken were reasonable under the circumstances.

In light of the above, we cannot advise what is ‘reasonable’; rather this would be a matter to be decided by the Disciplinary Tribunal on the specific merits of any case under consideration.  However, any tribunal is likely to ask questions to determine the steps the actuary took to establish whether or not a conflict existed, taking into account any compliance or otherwise with any firm policies in place at the time and then to establish, if, and how, any conflict, or possible conflict was managed. Evidence which could support answers to any of these questions would probably therefore be looked upon favourably.