By Jim Muir, director of financial data reconciliations firm, AutoRek.
As the new regulator looks to get tough on compliance, more businesses will focus on developing robust structures and processes that take into account the level of risk that the organisation is facing across different areas.
As a result, the remit of the actuary is likely to expand and play an important role in helping senior business executives determine an organisation’s risk strategy and make business decisions that are within acceptable bounds.
So what does this mean for actuaries?
Moving forwards, actuaries are going to come under increasing pressure to examine the complexity of existing management information systems and determine the financial impact of uncertainty within a company. Applying an enterprise risk lens to all areas of the business means that actuaries can help determine a strategy that minimises the financial impact of risk and provides assurance to regulators that client and company assets are being safeguarded.
As the FCA looks to rebuild the reputation of the financial industry, there will be a new emphasis on ensuring the protection of client assets. More organisations are beginning to recognise that the failings of the financial industry are going to be less cumbersome to fix by introducing risk management frameworks that provide a holistic view of the business. Only once firms understand the level of exposure that they are facing across different business functions, will they be able to introduce automated controls that improve management practices and operational supervision to ensure that client assets are not being compromised or placed in jeopardy at any point.
What should actuaries do?
A large part of what actuaries can do to help with compliance initiatives is to advise on the need to redesign operational processes and information systems to ensure that financial risk is lowered. Since actuaries often have a clear understanding of the levels of risk facing an organisation, they have a duty to explain in clear and concise terms to senior management what the expectation of the regulators is and how compliance can be achieved. This can be a detailed rule or a principle or something which may require additional budget once the required processes and data have been defined.
Whilst compliance will be a secondary concern for the majority of actuaries, senior management do still need to recognise the ‘cost of compliance’ when looking at financial risk and educate their teams onbest practices within the industry, such as the automation of client money reconciliations and calculations which can reduce the burden of compliance. By being able to provide clear client documentation regarding set-offs and the legal status of each bank account, there is also a real opportunity to put clients on a different commercial footing so that the firm’s funding requirements can be reduced, helping to free up valuable capital for other investments.
Once compliance has been established, the actuary should be a key agent in the redesign of products, terms and conditions which can help minimise the financial implications of risk. Actuaries will also need to develop some skills in socialising their role with colleagues in risk, technology, finance and the senior executive team. Organisations should expect the risk management function to be constantly reviewing existing systems with their colleagues so that the business can develop controls which contribute to a risk mitigation strategy and encourage best practice.
Adopting a forward-looking approach
Increasingly, actuaries need to help organisations get on the front foot internally and understand the portfolio of change. Since the FCA is under mounting pressure not to let implementation deadlines slip, to avoid damaging their reputation and that of the industry, various parts of the organisation need to come together to establish the businesses capacity for change and raise any concerns about resourcing constraints at the earliest opportunity to avoid missing implementation deadlines.
In the coming months, expect to see many more eye-watering fines, further tightening of the standards surrounding acceptable compliance and greater reporting demands that provide an audit trial demonstrating how organisations meet regulations. As a result, the role of the actuary is set to become more multi-faceted and they will increasingly take responsibility for working with other experts in the firm to facilitate the necessary improvements that drive change and improve accountability.
In the long-term, adopting a broader role within the business, empowers many actuaries to build up management skills and develop a more rounded view of the company. Within the financial services industry, there are several examples of companies, for example Aegon, which have employed actuaries at the helm of the business to act as CEO or CFO. The introduction of the FCA offers many leading professionals within the actuarial field, an opportunity to broaden their understanding of how the company operates and progress as a leader of the business in the future.
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