17 December 2004

Morris Review - Interim Assessment published

The Government asked Sir Derek Morris to conduct a wide-ranging independent review of the UK actuarial profession. Sir Derek Morris has today published his interim assessment.

The issues identified in the interim assessment include:

the profession overall has been too insular and slow to adapt to changing circumstances;
there has been insufficient transparency in actuarial advice;
there has been inadequate scrutiny, challenge and market-testing of actuarial advice by users: such as some pension fund trustees and Boards of insurers;
there has been a lack of clarity about the accountability of actuaries to the wider public interest;
in the past the educational syllabus has failed to take full account of developments in actuarial and non-actuarial thinking;
professional standards have been weak, ambiguous or too limited in range; and perceived as too influenced by commercial interests;
self-regulation has not been sufficient to address these issues.

The interim report identifies issues and policy options in three broad areas: the level of choice and competition in the market for actuarial services, the regulatory framework for the actuarial profession and the future role of the Government Actuary and the Government Actuary’s Department.

The review’s preliminary finding is 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 identifies a need to encourage market testing; discourage the bundling of actuarial advice; improve actuaries’ communication skills and to increase user knowledge and understanding.

The review identifies a number of weaknesses in the current self-regulatory framework of the actuarial profession: including weaknesses in professional actuarial standards; inadequate protection of the interests of consumers and pension scheme members and the perception that commercial interests may have superseded the interests of the wider public.

The report proposes three alternative models of regulation: continued self-regulation by the profession; independent oversight of the profession’s self-regulation and full statutory regulation. The review’s current thinking is that independent oversight of the profession’s self-regulation may be 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 identifies the Financial Reporting Council as a possible independent oversight body.

Many clients of the Government Actuary’s Department (GAD) were satisfied with the services that they received but a number of issues were also raised:

public service pensions schemes are required in statute to use GAD’s services: the review’s current thinking is to deregulate to give users of these services a choice of provider;
there may be more efficient ways of producing the UK population projections and the occupational pension scheme survey: the review is considering transferring the population projections work to the ONS and the pensions scheme survey to The Pensions Regulator;
there is a continued need for independent advice on the National Insurance Fund and statements of broad comparability of pensions when staff are transferred from the public to the private sector: the review recognises that there may be an ongoing role for the Government Actuary in providing independent sign-off on these activities; and
GAD competes for overseas work: the review is not currently considering any changes in this area.

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 also identifies a number of quite serious problems faced by the profession in the UK.”

“Against this background, the central question for this review, and for the actuarial profession, is how it can encourage and ensure the availability of best practice actuarial services to users.”

“I am grateful to the many contributors who have taken the time to put forward their views to the review team. I am keen to hear the views of interested parties on the issues and possible policy options that I set out in the interim assessment.”

Notes to Editors

1. 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.

2. The review received over 100 responses and held many consultation meetings in the UK and abroad.

3. 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.

4. 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.

5. Responses or reactions to the interim assessment report should be sent by 4 February 2005 by email to: morris.review@hm-treasury.x.gsi.gov.uk or to

The Morris Review
Room G38
1 Horse Guards Road
London
SW1A 2HQ
All written responses will be made public on the Review’s website http://www.morrisreview.org.uk/ unless the author specifically requests otherwise.
6. The review will deliver a final report to the Government with final recommendations by spring 2005.

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

8. 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

9. This press release and other Treasury publications and information area available on the Treasury website at http://www.hm-treasury.gov.uk/. 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.