By William C. Hines
A profession is generally defined as an occupation that requires substantial training and the study and mastery of specialized knowledge in a defined subject matter area. Some professions, such as the U.S. actuarial profession, are self-regulated, while others are regulated by outside entities, including local, state, and national governments and related agencies.
The principal advantage of a self-regulating profession is the autonomy it provides. In such a structure, the profession and its members remain independent of undue external influence and exercise self-determination. Members are free to set the profession’s direction within the bounds of applicable law and the ethical and practical responsibilities that come with self-regulation. Members of a profession are also typically the most knowledgeable and best trained to determine whether professional standards have been properly applied and upheld.
Codes of professional conduct, standards of practice, and disciplinary procedures are essential to support and protect the integrity of a self-regulating profession. Equally important is the existence of an organization to establish, maintain, and support these elements. Within the actuarial profession, self-regulation takes shape through the following components, all of which are housed within the Academy and followed by all five U.S.-based actuarial organizations:
- Rules for admission into professional organizations, including basic education and/or experience, as well as continuing education requirements for maintaining professional membership;
- The Code of Professional Conduct (the Code) requiring adherence to ethical principles;
- U.S. Qualification Standards (USQS) and actuarial standards of practice (ASOPs) that provide the framework for the actuary to provide consistency in the delivery of professional services and work products; and
- Rules addressing how and when members may be counseled, disciplined, or removed from professional membership through a disciplinary process that includes due process.
Precept 13
Regulatory activities of a profession are carried out for practical and ethical reasons and help promote the public interest and maintain the profession’s integrity and reputation. In addition, if a self-regulating profession does not prevent unethical behavior and practice, it is highly likely that some other regulator will emerge who can and will ensure ethical behavior and practice. A well-defined process of self-discipline and counseling is a key element of a self-regulatory approach.
Unlike other precepts established by the Code that apply to the actuary’s self-regulation of their own conduct, Precept 13 requires an actuary to disclose apparent, material violations of the Code by another actuary to “the appropriate counseling and discipline body of the profession” (for members of the U.S.-based actuarial organizations, this generally refers to the Actuarial Board for Counseling and Discipline [ABCD]) unless the situation was resolved through discussion between the actuaries or where such disclosure would be contrary to law or reveal confidential information.
A profession may also react to complaints made by nonmembers (i.e., the general public) or to public incidents indicative of bad behavior on the part of one of its members. In fact, it should be expected to do so. However, incompetence or unethical behavior may not always be obvious to someone with little mastery of the profession’s specialized knowledge and practices. Therefore, just as a profession may establish investigative and disciplinary bodies to adjudicate a complaint made against a member, it must rely on and expect its members to identify and report any apparent violation of its code of which they become aware.
ABCD Requests for Guidance
From time to time, ABCD members receive requests for guidance from actuaries who are faced with possible Precept 13 situations. While each instance is unique, many possible violations of the Code can be resolved by speaking with the other actuary. That discussion might even lead to a better understanding by both parties, especially when some aspect of professional judgment has been involved. In some instances, the discussion leads to clarification of the issue or application of the Code or an ASOP, and the situation is resolved.
Some of the requests for guidance received regarding Precept 13 focus on the terms “apparent,” “material,” and “unresolved.”
Apparent
While there are situations when the result of another actuary’s work may give rise to suspicion, it generally does not, by itself, rise to the level of creating “knowledge of an apparent violation of the Code.” Knowledge of another actuary’s apparent violation of the Code may require an actuary to be privy in some way to the processes underlying the other actuary’s work. On the other hand, actuaries should not use their incomplete access to relevant information or lack of experience in a practice area as an excuse not to comply with the requirements of Precept 13. To the extent that information routinely available to an actuary regarding the conduct of another actuary gives rise in their mind to concerns about professional behavior, they may have observed an apparent violation of the Code and ought to address it under Precept 13.
Material
Annotation 13-1 provides a description of how “material” should be interpreted under Precept 13. Essentially, the annotation indicates that a violation is material “if it is important or affects the outcome of a situation.” It is immaterial or trivial if it does not. One could argue that Annotation 13-1 is not clear about when a violation of the Code becomes material because it indicates that materiality is determined by the effect a violation has on an outcome rather than the effect it might have (or is likely to have) on an outcome. It may be helpful for the actuary trying to understand the concept of materiality to review the definition of materiality in ASOP No. 1, Introductory Actuarial Standard of Practice.
Unresolved
“Unresolved,” as used in Precept 13, could be used to describe an apparent, material violation of the Code present or reflected in an actuarial process or draft work product that is not modified or amended before the work product becomes final or has an opportunity to influence a user of the work product in a material way.
Resolution of such a violation of the Code usually refers to one of two possible situations:
- An actuary with initial knowledge of an apparent, unresolved, material violation of the Code by another actuary may subsequently observe that the other actuary, through self-directed changes in conduct or practice or through the acquisition and/or application of additional information, has effectively eliminated those initial concerns in the final process or work product. Therefore, the matter could be considered resolved without having a discussion with the actuary in question.
Author’s note: Much of the content of this article was taken from The Application of Precept 13 of the Code of Professional Conduct discussion paper authored by the Committee on Professional Responsibility and dated December 2013.
William C. Hines, MAAA, FSA, is chairperson of the Actuarial Board for Counseling and Discipline.