UP TO CODE

This is a regular column in Contingencies. Written mainly by members of the Actuarial Board for Counseling and Discipline, "Up to Code" articles reflect the wide variety of issues that are brought to the ABCD’s attention during the request for guidance and complaint processes. 

September/October 2021

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WHO KNOWS 14

Deborah Rosenberg 

If you ask anyone you meet about the significance of the number 14, the reply will probably relate to Valentine’s Day which is on the 14th of February. For the historian, 14 may represent the storming of the Bastille on July 14, 1789, the inclusion of Vermont as the 14th state of the United States in 1791, or Flag Day, celebrated on June 14th. Probably less known is that tarot number 14 is the card of the Temperance.

Should you happen to ask the question of a credentialed actuary, though, they may very well think of the Code of Professional Conduct.

The Code of Professional Conduct as we know it today was promulgated by the U.S.-based actuarial organizations, effective January 1, 2001. It was adopted by all U.S.-based actuarial organizations without variation. The achievement of uniformity was a milestone for the profession. Prior to January 1, 2001, various other versions of the Code had been promulgated, but there were inconsistencies across organizations. The Code consists of 14 Precepts and a total of 23 annotations.

The term “Precept” is a term only used in the Code and not in any other U.S.-based actuarial professionalism-­related documents. What is the intention of defining the standards of the Code of Professional Conduct as Precepts? Some common synonyms are “ordinance,” “regulation,” “rule,” and “statute.” While all these words mean “a principal governing an action or procedure,” the term Precept also suggests something advisory and not obligatory, communicated through teachings. This definition appears to be more in line with the intent of the Code; as we shall see, many of the terms used in the Precepts are not defined. An annotation, on the other hand, is a note of explanation or comment added to a text and is designed to provide further guidance on adhering to the Precepts.

The Code of Professional Conduct is the glue that ties all other U.S. professionalism elements together—namely, the Actuarial Standards Board, the U.S. Qualification Standards and the Actuarial Board for Counseling and Discipline. The Code is a powerful tool for managing professional risk. The Code is also very clear on the fact that in the event that any Precept conflicts with applicable laws or regulations, follow the law.

There are only seven terms that are defined in the Code, namely Actuarial Communication, Actuarial Services, Actuary, Confidential Information, Law, Principal, and Recognized Actuarial Organization. Many of these terms are also defined elsewhere. However, considering the intended purpose of the Code, are there other terms that should be defined? Let us consider the use of the term “integrity.” One might think that this would encapsulate the whole purpose of the Code. And yet the term is not defined anywhere in the Code. The term is only used once in Precept 1 but is indirectly referred to in several other Precepts. In addition, as we shall see, there can be more than one professional requirement in a given Precept.

Precept 1 states specifically that “An Actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.” The failure to act with integrity is the most frequent issue of alleged violation. For example, from 2018 to 2020, there were 24 alleged violations of this Precept. The theme of integrity can be found in other Precepts as well.

  • In Precept 6, we can see the integrity requirement with respect to compensation, “An Actuary shall make appropriate and timely disclosure to a present or prospective Principal of the sources of all direct and indirect material compensation that the Actuary or Actuary’s firm has received, or may receive, from another party in relation to an assignment for which the Actuary has provided, or will provide Actuarial Services for that Principal.”

  • Precept 7, “An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest.”

  • Precept 9, “An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the principal required to do so by the Law.

 

Each of these Precepts advises the Actuary on how integrity interacts with their work.

There are other major areas which are included in the Code of Professional Conduct which are not specifically defined. A major concern is actuarial competence and the use of the actuarial work product. The notion of competence is addressed in Precept 1, “An Actuary shall act honestly, with integrity and competence,” as well as in Precept 2, “An Actuary shall perform Actuarial Services only when the Actuary is qualified to do so.”

 

Competence is also addressed though not specifically named in Precept 11, “An Actuary shall not engage in any advertising or business solicitation activities with respect to Actuarial Services that the Actuary knows or should know are false or misleading,” and some would also include Precept 12, “An Actuary shall make use of membership titles and designations of a Recognized Actuarial Organization only in a manner that conforms to the practices authorized by that organization.”

There also is a Precept to address the use of the actuarial work product, which is directly addressed in Precept 8: “An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.”

The Code is directly tied to the actuarial standards of practice (ASOPs) through Precept 3, “An Actuary shall ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.” From 2018 to 2020, there were 20 inquiries initiated for work failing to satisfy the ASOPs.

Communications are a topic of the ASOPs and Precept 4 states, “An actuary who issues an Actuarial Communication shall take appropriate steps to ensure that the Actuarial Communication is clear and appropriate to the circumstances and its intended audience, and satisfies applicable standards of practice.” Precept 5 also deals with communication: “An Actuary who issues an Actuarial Communication shall, as appropriate, identify the Principal(s) for whom the Actuarial Communication is issued and describe the capacity in which the Actuary serves.”

Cooperation is addressed in Precept 10: “An Actuary shall perform Actuarial Services with courtesy and professional respect and shall cooperate with others in the Principal’s interest.” From 2018 to 2020, only five inquiries were initiated for failure to perform services with courtesy and professional respect and cooperation with others in the principal’s interest.

Last but not least are Precepts 13 and 14, which introduce counseling and discipline.

Precept 13: “An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information.”

Precept 14: “An Actuary shall respond promptly, truthfully, and fully to any request for information by, and cooperate fully with, an appropriate counseling and disciplinary body of the profession in connection with any disciplinary, counseling, or other proceeding of such body relating to the Code. The Actuary’s responsibility to respond shall be subject to applicable restrictions on Confidential Information and those imposed by Law.” Interestingly, there are very few violations alleged with Precept 14.

While the Code of Professional Conduct can be viewed as a collection of words and ideas, words and ideas gain acceptance through compliance. Once the Code was adopted, it became our responsibility to make the Code gain acceptance through using and following the Precepts.     

   

DEBORAH ROSENBERG, MAAA, FCAS, is a member of the Actuarial Board for Counseling and Discipline.

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