5.1 Principle 3 of the Code provides that: 鈥淢embers must ensure that their professional judgement is not compromised, and cannot reasonably be seen to be compromised, by bias, conflict of interest, or the undue influence of others.鈥�
5.2 Impartiality can be described as the principle that decisions ought to be based on objective criteria, rather than on the basis of bias, prejudice, or preferring to benefit one person over another for improper reasons.
5.3 A Member exercising professional judgement will need to do so, and be seen to do so, in a way that is free from bias (actual or perceived) and that ensures they are able to give advice that is independent of any personal interests or feelings.
5.4 From time to time, Members may be exposed to situations that risk impairing their objectivity. If the circumstances of an instruction, relationship with a user, and/or other factors increase the risk of compromising the impartiality of a Member鈥檚 professional judgement over the course of a piece of work, then the Member may be better not to accept the instruction. If, having accepted an instruction, a Member identifies circumstances that compromise, or are seen to compromise, their professional judgement, the Member will need to desist from acting; this may involve explaining the situation to the user and helping them make alternative arrangements.
5.5 When thinking about impartiality, Members will need to ask themselves whether there is any conflict between the advice which they are giving, or decisions which they are making, and their own personal interests. A good test is to imagine a fair-minded and informed observer: would this person have any reason to suspect that your impartiality might be compromised?[1] If so, action will need to be taken to rectify this.
5.6 Threats to a Member鈥檚 impartiality might include being asked to act in a way that contravenes a Member鈥檚 duties under the Code, other professional requirements, or even the law. Members directly employed by an organisation might face particular pressures to carry out work in a way that is favourable to the commercial interests of that organisation and will need to be careful to avoid misleading regulators, boards, or other users.
5.7 When considering the potential for bias, Members need to be aware that there are many forms of bias, including ethical and technical bias. Some examples of bias might include situations where a technical methodology is selected because the Member is familiar with it, even if others are more appropriate (that is not to say that using a technique that can be applied quickly is necessarily wrong; rather that Members need to be clear about the justification for their chosen approach) or where a Member is reluctant to challenge the work of a colleague who is also friend, even though such a challenge would be appropriate.
5.8 Members can mitigate the risk of acting in a way that is biased by being aware of the potential for bias and taking this into account when making decisions or providing advice to ensure they are acting impartially. Being open to appropriate challenges from others and being willing to change or adapt one鈥檚 approach can also help to mitigate the risk of acting in a way that is biased, as it is possible to hold a bias and not even be aware of it.
5.9 A further threat to impartiality Members ought to be aware of is the potential influence of 鈥楪roup Think鈥� in their decision-making. Group Think is defined as 鈥渢he tendency for one鈥檚 own judgement to be influenced by the apparent consensus view of assumptions, methods, processes or approaches leading to a reduction in the variety of ideas in the market鈥�.[2]
5.10 One of the dangers of Group Think is that it has the potential to result in poor conduct or systematic business failures brought on by working environments in which perspectives are not challenged and people act in the same way as others do without sufficient justification.
5.11 Members can address this risk by being aware of their propensity to participate in Group Think in the first place and by being prepared to challenge or speak up where processes or approaches are not appropriate for the work being carried out. When making decisions in relation to a piece of work, Members may wish to ask themselves whether, in following the crowd, they are doing so because it is easier (or they are reluctant to challenge the status quo) or because it is appropriate to the work.
5.12鈥� Because conflicts of interest are a particular threat to the Impartiality principle, the Code has the following amplifications: 鈥淢embers must take reasonable steps to ensure that they are aware of any relevant interests that might create a conflict鈥� and 鈥淢embers must not act where there is an unreconciled conflict of interest.鈥�.
5.13 Conflicts of interest can be complex and require use of professional judgement. This section is intended to assist Members with understanding their responsibilities in relation to conflicts of interest and to help with that exercise of professional judgement.
5.14 Ensuring that conflicts are (a) understood; (b) identified; and (c) reconciled or eliminated, is the key to meeting the requirements of the Code.
5.15 All Members have an individual responsibility to be familiar with their obligation to identify conflicts and to know what to do if they encounter one. This responsibility exists regardless of their particular role in the work or level of seniority, including Students Members, more junior members of an actuarial team and those working as part of a multidisciplinary team.
5.16 There may also be practice-specific conflict of interest provisions for Members, such as any contained in the relevant professional standards [3]. Additionally, Members need to have regard to any relevant legal and regulatory requirements in the country in which they are practising [4].
5.17 If Members are unsure how to act at any stage, 黑料正能量 encourages them to seek guidance from appropriate sources. A note regarding further sources of advice can be found at section 9 of this Guidance.
5.18 鈥楥onflicts of interest鈥� can arise in any situation where two or more separate parties are involved, and the interests of those parties differ. As conflicts can be complex, it is not possible to give an exhaustive list. However, common examples of situations where conflicts of interests can arise are where a Member鈥檚 professional responsibility to a user of their work conflicts or is seen to conflict with:
5.19 Taking each of these in turn, some examples could be:
5.20 More examples of situations where there might be a possible conflict of interest are included at Appendix A.
5.21 The effective understanding and identification of conflicts of interest is key to their reconciliation. Amplification 3.1 of the Code provides that Members take reasonable steps to ensure they are aware of any interests that might create a conflict.
5.22 In order to identify conflicts it may be useful for Members to approach this in two steps:
5.23 When establishing the various interested parties, Members need to be alert to the possibility that within one legal entity there are two separate bodies with divergent interests (for example, a finance committee and a remuneration committee), or one body with two different responsibilities (for example, the sponsoring employer of a pension scheme might also be the trustee or manager of that scheme). In such circumstances, a Member might conclude that there are two distinct users, giving rise to a possible conflict.
5.24 Taking 鈥渞easonable steps鈥� to identify potential conflicts would normally involve Members following any internal processes established for this purpose by their own organisation, and might typically include sending out a 鈥榗onflict check鈥� email to appropriate staff in the organisation and/or to the relevant conflict committee, and/or a search of the organisation鈥檚 conflicts database.
5.25 Arrangements implemented by a Member or their organisation for ensuring that conflicts of interest are effectively identified could include:
5.26 Members are required to 鈥渞espect confidentiality鈥� [5]. Therefore, before taking on any new engagement, Members are advised to consider whether they have an existing duty of confidentiality to any existing or former users, which would give rise to a conflict of interest with the proposed new engagement.
5.27 A note of some helpful questions for Members to consider when identifying conflicts is included at Appendix B.
5.28 Once a conflict of interest is identified, amplification 3.2 of the Code states that Members must not act if there is an unreconciled conflict of interest. This means that the conflict needs to be managed appropriately or the Member must decline or cease to act in the specific situation.
5.29 鈥淩econciliation鈥� can be understood to mean carefully managing the conflict such that, within the scope of an engagement, the conflict does not have (and is not seen to have) any adverse effect on the work for the users.
5.30 It is also necessary that Members are alert to situations where others perceive that there may be a conflict of interest or the possibility of a conflict of interest, even when an actual conflict of interest does not exist. In these situations it is still necessary for the perception of the conflict to be appropriately addressed in order for the Member to continue to act.
5.31 Reconciling a conflict of interest will likely involve disclosing the existence of the conflict of interest to the user(s) concerned and explaining the relevant issues, risks and any constraints on the work in a manner so that the user understands them. However, Members also need to consider any underlying confidentiality obligations to other parties.
5.32 There may be internal guidance in Members鈥� organisations on how conflicts of interest are to be managed. Members need to satisfy themselves that such guidance is appropriate and sufficient, and if/where necessary supplement it with their own arrangements and tools for managing conflicts. These arrangements and tools may incorporate some or all of the following, taking into account any established market practices for handling such conflicts:
When agreeing the scope of an engagement, Members may wish to define especially clearly any limitations on the extent of their role and the type of advice which they can provide on the engagement.
A written 鈥榗onflicts management plan鈥� can be shared with (and may be explicitly agreed by) the relevant user(s). Such a plan might typically cover:
If a Member works within an organisation that has engagements with two users with competing interests, it may be possible to ensure that the users are advised by different teams within the organisation. In some cases, the more 鈥榤echanical鈥� work might still be undertaken for both users by a common team.
One option for managing conflicts of interest internally is to establish and maintain arrangements which restrict the flow of sensitive information within the Member鈥檚 organisation. Information barriers are administrative, electronic and/or physical barriers to ensure that information used by one part of the organisation is withheld from, or not used by, other parts of the organisation.
The work review under APS X2 can form an appropriate component of a conflict management policy. Where the work for one user might be seen as potentially creating a conflict with work for another user, independent peer review of that work can form part of the process for ensuring the transparency and objectivity of a Member鈥檚 work. [6]
It is important that Members ensure that they are not incentivised by their employer in a way that might be seen to encourage them to provide anything other than the most suitable and appropriate advice to a user of their work.
Members may be able to reconcile a potential or perceived conflict by obtaining consent from a user to act or continue to act for another user with conflicting interests. In such cases, the Member will need to consider what will happen if that consent is withdrawn, making it likely that they will have to cease acting for one or both users.
5.33 Where a conflict of interest is identified, Members are encouraged to carefully document the reasoning for their decision to either continue or desist from acting, including the steps that they have taken to reconcile the conflict. Being able to explain and justify the approach they have taken in reaching their decision will assist the Member when being called upon to do so, for example in response to a request from a user or a regulator.
5.34 A note of some helpful questions for Members to consider when managing conflicts is included at Appendix C.
[1] This is the test for bias as set out by Lord Hope in Porter v Magill [2002] 2 AC 357, which states that: 鈥淭he question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the [Tribunal] was biased鈥�.
[2] This is the definition of 鈥淕roup Think鈥� as set out in the review by the Joint Forum on Actuarial Regulation (JFAR) on Group Think. The Review includes guidance for individual actuaries on how to address Group Think.
[3] Such as those included in APS P1: Duties and responsibilities of Members Undertaking Work in Relation to Pension Schemes. This contains specific requirements for those involved in pensions work in relation to the production of a conflicts of interest management plan and some specific restrictions on the types of advice which may be provided to both the trustees and the sponsoring employer.
[5] Amplification 1.3 of the Actuaries鈥� Code and paragraph 3.23 of this Guidance.
[6] See APS X2: Review of Actuarial Work on our Actuarial Profession Standards (APS) webpage