President's Message

The Academy as the Fulcrum of Self-Regulation

The Academy as the Fulcrum of Self-Regulation

By Steve Alpert

In virtually every conversation I’ve had with Academy staff and volunteer leaders about professionalism, the concept of the self-regulation of the U.S. actuarial profession comes up. Maintaining and strengthening self-regulation is central to the Academy’s professionalism mission and a source of pride for all of those who are working hard to achieve that mission. But what is the Academy’s role in self-regulation and what can the Academy do to make self-regulation more effective? And how does the Academy fit into the ongoing conversation about the value the profession brings to the public?

My review of the Academy’s history suggests to me that, by design and operation, the Academy has allowed actuarial professionalism—the commitment to ethical conduct, qualified and appropriate practice, and personal accountability—to grow, evolve, and mature over more than five decades. The infrastructure of professionalism and the standards that it promulgates and enforces have grown along with the public’s expectations of actuaries. The Academy is structured to provide independence and credibility to actuarial professionalism and, in its own unique way, it functions as the fulcrum of the public’s trust in the actuarial profession and the profession’s self-regulation in the United States.

You do not need to look further than the dictionary to understand that a self-regulating entity is one that operates “without externally imposed controls or regulations.”[1] Since its founding, the Academy has helped to create an environment that has made externally imposed controls over the profession unnecessary. This environment begins with the concept of independence. Although before the Academy’s founding in 1965 some thought was given to setting up the Academy with a federal charter to accredit actuaries, it became clear that such an outcome was neither politically feasible nor as advantageous as the private nonprofit organizational structure that was formed and survives today. As noted in Charting the Course, “In the long run, the structure of a nonprofit gave the Academy significantly more flexibility as a self-regulated professional organization than it would have had under a federal charter.”[2]

The Academy was also created to be independent of the other U.S. actuarial organizations and the commercial interests they represent. The Academy was conceived as an independent organization that encompasses the entire profession, and neither replaces nor is subsidiary to any other actuarial organization. This separation and independence allows the Academy to focus on its core mission of professionalism without the potential for conflict that could arise if the Academy also had more commercially focused goals.

Of course, independence is a necessary but not a sufficient condition for successful self-regulation. One also needs the “regulation” itself. It is well understood that the Academy made the four key elements of actuarial professionalism possible. Those elements—the core of self-regulation—are now well established: the Code of Professional Conduct sets forth the ethical and professional behavior expected of actuaries; the Qualification Standards for Issuing Statements of Actuarial Opinion in the United States (USQS) define minimum competency for providing actuarial services; the actuarial standards of practice (ASOPs) provide guidance on appropriate practice in both general and specific areas; and the counseling and discipline process managed by the Actuarial Board for Counseling and Discipline (ABCD) helps to enforce the Code, the USQS, and the ASOPs.

With its independent organizational structure in place, the Academy played the leading role in creating and managing the building blocks of self-regulation, all of which took time to evolve and mature (and continue to do so). For example, the Actuarial Standards Board (ASB) was established permanently within the Academy in1988. The ABCD followed three years later in 1991. By 2001, all five of the U.S. actuarial organizations had adopted the single, unified Code of Professional Conduct in use today. And by 2008, the USQS had been expanded to cover the opinions of virtually all U.S. actuaries credentialed by any of the five U.S.-based actuarial organizations, thus subjecting them to the USQS.

But, establishing independence and a great set of standards is not enough. As they say, “the price of liberty is eternal vigilance.” Self-regulation is an ongoing series of actions, each one of which has to be imbued with sufficient credibility to earn the public’s trust. And this is where the Academy’s critical role in actuarial self-regulation becomes apparent. Because of the Academy’s unique role as the self-regulatory body of the profession, the Academy has organizational and governance policies that reinforce the constancy of its mission and purpose and its true independence from outside influence.

Consider, for example, the way that the Academy manages the participation of Academy volunteers. To ensure a continual flow of fresh energy and perspective, the Academy adheres to a term-limit policy for volunteer service in any one role. Volunteers are nominated and selected for higher levels of responsibility based, in part, on their demonstrated commitment to the Academy’s mission and purpose. Thus, the Academy views steady turnover in volunteer leaders as a healthy way to keep Academy committees focused and strong.

The Academy also requires its volunteers (including those on the ASB and ABCD) to acknowledge the Academy’s Conflict of Interest (COI) policy. Each year, every Academy volunteer is reminded that the Academy’s work requires that its volunteers recognize their obligation to maintain a high level of professional objectivity and independence from any specific interests of members’ employers or from partisanship. The Academy Board requires that each year, Academy volunteers—and any individual who is an interested party on a committee, whether an Academy member or not—must acknowledge the Academy’s COI policy. Those who fail to do so may not participate in the work of Academy boards or committees.

The Academy also protects its independence and the integrity of its professionalism work by promoting orderly transparency, balancing public input and explanation of results with protecting a standard-setting body’s need for private deliberation. Striking this balance is important. As I mentioned earlier this year, it is critical that the independence and integrity of the Academy’s standard-setting processes is not perceived to be undermined or unduly controlled by narrow commercial interests just because those interests or their representatives happen to be speaking with the loudest voices.

The Academy’s role in the self-regulation of the U.S. actuarial profession is fundamental. But it is not enough to just claim the mantle of self-regulation. When we make that claim, we also take on a special responsibility to “get it right,” every day. Getting it right means that when we act—as individuals, as the Academy, and as a profession as a whole—we have to look beyond our own personal or commercial interests and show the public that we are meeting their needs and expectations for governance of the profession. That is not always easy to do. In a New York Times op-ed last June, David Brooks wrote, “If you strip away all the communal commitments that help people govern themselves from within, then very soon you find you have to pass all sorts of laws to govern them from without.”[3]

To be clear, self-regulation is regulation. While the Actuarial Standards Board does not establish or promulgate laws or regulations in any situation, it provides guidance, through ASOPs, on what individual actuaries doing their best to comply with duly enacted laws and regulations should take into consideration.

Actuarial professionalism garners the public’s trust because it is an effective form of regulation. And actuarial professionalism is effective because the Academy maintains its independence and credibility, has built an enduring professionalism infrastructure, and follows a continual process of defending the integrity and independence of the standard-setting and enforcement activities housed within it. This is why the Academy should be viewed as the fulcrum of self-regulation, and its responsible maintenance and stewardship best serves the long-term interest of the public and the profession.

References

[1] http://www.dictionary.com/browse/self-regulating?s=t

[2] Charting the Course, p16.

[3] “Anthony Kennedy and the Privatization of Meaning”; The New York Times; June 28, 2018.

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