“This webpage sets out the Board’s proposals for new authorisation, supervision and complaints rules for Designated Professional Body (DPB) firms and the rationale for the proposed changes.”
I invite you to participate in this consultation on policy proposals to introduce new rules on authorisation, supervision and complaints handling for DPB firms, by the IFoA’s Regulatory Board (the Board). View the current DPB Handbook.
The IFoA has been conducting a substantive review of the DPB Handbook – which was originally introduced in 2009 – and these proposals result from that review.
The Board’s proposals are designed to make the DPB authorisation process for applicant firms quicker, easier and more cost effective, as well as better integrating it with the ongoing supervision of DPB firms. The Board also proposes to revise the DPB Annual Return, so that it focuses on data the IFoA actively uses and to help avoid duplication; and to review firm monitoring visits in light of the IFoA’s evolving approach to risk and regulatory priorities.
The consultation also includes proposals to improve complaints handling, both by DPB firms and by the IFoA, so that all parties know what to do when something goes wrong, and so that they can expect faster and more effective resolution.
The Board welcomes comments on the policy proposals from individual Members, employers of actuaries, other regulators or membership bodies, and anyone else with an interest in the standards which the IFoA sets for its Members and regulated firms. The consultation is likely to be of particular interest to existing DPB firms, or actuarial firms which may be considering making use of the IFoA’s DPB licensing regime.
This consultation asks a series of questions, and we would encourage you to provide comments to support your answers.
We thank you for taking the time to consider these proposals and look forward to receiving your comments.
Neil Buckley
Chair of Regulatory Board
All IFoA DPB firms are required to be managed and controlled by actuaries and their licence allows them to provide regulated investment advice and other services. As an alternative to the DPB licence, some firms hold an Authorised Professional Firm (APF) licence, which allows dual regulation, with ‘Non-Mainstream Regulated Activities (NMRAs) carried out under the IFoA’s DPB Handbook and mainstream regulated activities carried out under the FCA Handbook. The following proposals relate to both types of licence.
IFoA regulation can be a more attractive alternative to FCA regulation for some actuarial firms as it is cheaper and easier to comply with, and is tailored specifically to the needs of the industry. The IFoA’s DPB scheme is relatively small: for the list of firms, see licensed firms.
Oversight of the DPB regime is the responsibility of the DPB Board. View the current DPB Handbook and Guide
The IFoA has been reviewing the DPB Handbook and associated policies and procedures over the course of the last year. The Handbook has not been substantially revised since it was originally introduced in 2009 and requires to be updated to better reflect regulatory developments and new approaches.
The IFoA believes that the suite of policy proposals described below will help strengthen our approach to regulating DPB firms by: helping to make the authorisation process quicker, easier and cost effective for firms, while better integrating it with supervision; improving the supervision of DPB firms, including data collection and management, and; revising complaints handling so that the process is clearer, faster and more effective.
After gathering further views and evidence through a process of consultation and stakeholder engagement, the IFoA expects to commission revised rules which reflect its proposed policy and approach. We expect to publish revised rules later this year.
The IFoA will also be updating the DPB Handbook to take account of changes in the wider regulatory environment and reviewing the guidance available for DPB firms.
The IFoA proposes to improve its authorisation process and make it more attractive and cost effective to prospective DPB firms, as well as better integrated with the ongoing supervision and monitoring of DPB firms.
The Board has also considered how to update its authorisation policy in light of changes to the wider regulatory landscape since the DPB scheme was originally set up, including the Financial Conduct Authority’s (FCA’s) introduction of its Senior Managers & Certification Regime (SM&CR) and the Consumer Duty.
The current authorisation rules are contained in the DPB Handbook Part 4: Rules governing Licensed Authorised Professional Firms, and; Part 6: Licence Terms and Conditions. We intend to shorten and revise these rules to form a single part of the Handbook, with the introduction of additional guidance for firms.
The IFoA proposes to better integrate its approach to authorisation with the ongoing supervision of firms, through a revised risk framework and data collection (including the submission of supplementary evidence during the application process).
The IFoA will also be developing its own guidance on assessing applications and how to identify which elements should involve a qualitative assessment or evaluation, and which elements should be on the basis of ‘self-certification’. Additional information on applying will be made available on the DPB pages of the IFoA website.
The IFoA considers that a qualitative assessment of both the financial position and business model of the applicant firm should remain a central part of the authorisation process and that this should be strengthened with the use of a financial subcommittee, consideration of professional indemnity insurance (PII) and protection arrangements (as below), and interviews with applicants.
The nature of the business model and financial position of a DPB firm is central to the regulatory risks it might pose during operation. In practice, the nature and proportion of regulated activities which a DPB firm undertakes (as a percentage of its overall business) is scrutinised as part of the supervision processes; on submission of the DPB Annual Return; and in firm visit reports. The IFoA proposes to:
The IFoA has considered the extent to which the IFoA should examine the suitability of key individuals within an applicant firm, especially in light of the FCA’s requirements for certain firms it regulates as part of its Senior Managers & Certification Regime (SM&CR).
Members of the IFoA (and other equivalent international professional bodies) are already subject to high standards of professional conduct, and the IFoA also keeps certain limited records in relation to criminal matters or misconduct. Therefore:
Given the small size of the regime and the low number of applications it receives, the IFoA has the resources and opportunity to take a more individualised approach than might a larger regulator. In some cases it may be useful to discuss both individual suitability, and other aspects of an application such as the business model or financial soundness, with key individuals as part of the application process (likely to be actuaries who control the firm).
The IFoA proposes to introduce a more seamless approach to the authorisation and supervision of DPB firms, which will help to identify any possible issues as they emerge and to ensure these are kept under review.
Standard engagement letters are a common part of the conduct rules across financial services regulatory regimes and accordingly the current DPB Handbook includes standard engagement terms [at Annex 3.1]. However, the IFoA believes that DPB firms will be better served with guidance in this area, helping to avoid the risks associated with a ‘one size fits’ all approach. The DPB Board may consider a firm’s own draft engagement letters as part of any application.
As part of its wider review, the DPB Board proposes that the complaints policy for firms should be better integrated with the rules for the IFoA’s own handling of complaints. The complaints rules in Part 3: Conduct of Business Code will be removed and incorporated in new complaints rules (see separate discussion below.)
The IFoA has considered PII and other prudential requirements for DPB Firms in light of the recent hardening of the PII market and subsequent difficulties for some firms in obtaining insurance policies which meet the minimum requirements. We propose to:
One of the main ways in which the DPB Scheme can be more attractive than the alternative of FCA regulation is an easier application process, which is both quicker and cheaper.
The IFoA proposes to introduce clearer and shorter timeframes to consider applications, with a commitment to process an application within 2 months (allowing flexibility where necessary). This compares favourably with the FCA authorisation process which can take up to 12 months.
The IFoA also proposes to review the authorisation/licence costs to ensure that they remain competitive with FCA authorisation costs and attractive to firms, as well as fairly reflecting the cost of IFoA regulation.
The IFoA has also reviewed the data and intelligence it collects from DPB firms – both as part of ongoing supervision, including the DPB Annual Return (see below) – and also through the supplementary documents and evidence which form part of an application for authorisation.
The IFoA intends to keep this under review in light of any emerging risks or regulatory priorities. Data collected during the authorisation process will be better integrated with ongoing supervision, including the DPB Annual Return.
The current static list of supplementary evidence will be removed from the rules and transferred to guidance for applicants, which can be varied according to the Board’s evolving regulatory priorities and risk framework. The IFoA proposes to:
Due to the small size of the DPB scheme, the IFoA is able to take a more personalised approach to supervising DPB Firms, than would a larger regulator. This means in practice that the DPB Board and IFoA staff regularly liaise with senior personnel and compliance staff within DPB firms, providing individual guidance and assistance where possible.
The IFoA intends to continue this approach, but also to revise the two more formal elements to its supervision of DPB firms: the DPB Annual Return which collects data from firms; and firm visits, which are undertaken on IFoA’s behalf by the Quality Assurance Department of the Institute of Chartered Accountants in England and Wales (ICAEW).
The DPB Annual Return is collected from all DPB Firms at the end of each calendar year and it constitutes one of the main sources of supervisory intelligence for the DPB Board, which reviews the results each spring and addresses any issues or concerns.
The IFoA has been reviewing the data it collects in light of key regulatory risks, and also as a matter of good practice not to collect data unnecessarily, where it is not actively made use of or held elsewhere in the organisation. The IFoA will be undertaking further work during the course of 2024 on its DPB risk framework and its intention is to integrate this more closely with the data it collects (including as part of the IFoA’s ongoing, substantive review of its operational processes and systems). We welcome comments from respondents on any key regulatory risks and how these might be addressed with the help of the data which IFoA collects and reviews.
Additionally, the IFoA has redesigned the operation of the webform version of the DPB Annual Return and a new web application and form is expected to be in place in time for December 2024. We intend this to have improved functionality and to be quicker and easier for firms to complete. In particular, different individuals within the same firm should have easier access, and it will be easier to retrieve previous entries and completed forms, allowing entries to be pre-populated where relevant.
The small size of the DPB scheme means that it is feasible for us to directly supervise firms. During the Covid period, the IFoA transitioned to a ‘digital first’ policy, which meant that firm visits have been migrated to virtual meetings. The DPB Board reviews reports it receives from ICAEW on the firm visits, which are usually conducted on a cycle of 3-5 years for each firm.
We believe that the visits continue to represent an important check that firms are complying with the DPB Handbook and to identify whether there are any risks or issues of concern, which can be addressed with the help of the IFoA.
The IFoA therefore proposes to continue this form of direct supervision but to review its approach and priorities in light of its approach to risk. Additionally, the IFoA has recently been considering the grading system; the key regulatory risks reported annually by DPB firms; and the risk model which is used by ICAEW.
The DPB Board has considered its approach to complaints handling and proposes to align this as far as possible with the principles which underpin the IFoA’s revised Disciplinary Rules (2023), but recognizing where appropriate differences between rules for individuals and for firms. For the IFoA’s Disciplinary Rules, see: Formal rules, regulations and guidance
We also propose to revise the rules and information available on the IFoA website to include:
The definition of what constitutes a complaint will be simplified in the rules and also made clearer on the IFoA website and DPB Firms websites and literature. While DPB Firms have business clients, the services they provide are ultimately on behalf of ‘consumers’, such as pension scheme members – who are also entitled to make a complaint. It is therefore important to ensure that it is easy to understand how to make a complaint.
The complaints rules for DPB Firms currently sit in the Conduct of Business Code (Part 3). The DPB Board proposes to remove these and integrate them with the rules for IFoA complaint handling, so they are more seamless. This will also allow the IFoA to be involved at an earlier stage, encouraging mediation or other forms of Alternative Dispute Resolution (ADR) where appropriate.
Given the small size of the DPB Scheme and the relatively few complaints the IFoA receives, there is no practical need to have a ‘two stage’ process of complaints handling, such as the FCA uses. Complainants and Respondent Firms should be encouraged to involve the IFoA where this may be helpful and appropriate, which could help to promote good outcomes and potentially reduce the time taken to resolve a complaint. We therefore propose to:
The IFoA believes current appeal processes are overly complex and lengthy and that these should be simplified. The current rules allow for appeals both to an independent ‘Complaints Reviewer’ and (for the Respondent Firm) to a DPB Tribunal, which is composed separately from the DPB Board (the primary decision-making body). We believe that the right to appeal on the basis of an independent review allows for the right level of scrutiny of the DPB Board’s decision making and allows for a sufficient level of technical expertise.
The DPB Board proposes to introduce additional time limits to help to ensure that complaints are dealt with in good time. We propose a four-month time limit within which the parties can expect the IFoA to consider a complaint and issue a response.
Additionally, the DPB Board has considered the nature of possible complaints, including complaints about long-term investment advice, and believes that a time limit of five years to complain (from the event, or knowledge) giving rise to the complaint should be introduced. The Board proposes to introduce:
The IFoA proposes to retain broad powers to investigate a complaint, including through the collection of written and oral evidence. However, given the potential complexity of the issues it may be asked to consider in relation to a complaint – including legal issues around sanctions, losses, and costs – the Board also proposes to strengthen its powers to commission expert evidence including legal advice, where needed.
Additionally, we propose to clarify in the rules that it is the primary responsibility of the Complainant to establish any possible loss.
The IFoA has also reviewed its available sanctions for Respondent Firms (DPB Handbook, paragraph 5.21), which are relatively broad and include powers to fine, as well as to award compensation. We propose that the DPB Board keeps these sanctions under review and also revises and updates the limits for fines and compensations. We also propose a new power to follow up and review the impact of any sanctions (e.g. whether the Board’s guidance or advice has been followed) through its supervisory powers and the DPB Annual Return.
The IFoA’s DPB scheme is relatively small in scale, but DPB firms are of varying sizes and their services (which provided under a DPB licence) are also provided to a relatively wide range of clients.
The current DPB Handbook was originally introduced in 2009 and since then has been subject only to partial amendment or update. The IFoA therefore intends to revise the Handbook so that it better reflects current regulatory practice and policy. The policy proposals described in this consultation are intended to help further this aim and are focused on the main lifecycle of contact points which DPB firms have with the IFoA.
By making the authorisation process easier and quicker for applicant firms, the IFoA hopes to make the DPB scheme a more attractive alternative to FCA regulation, whilst maintaining high standards and criteria to be met. The DPB scheme is, however, likely to continue to be of interest to only a relatively small number of actuary’s firms, which wish to undertake relevant regulated activities on behalf their clients.
Our proposals to simplify and improve the supervision of DPB firms are also expected to save firms time and money in complying with the DPB scheme, including in relation to completing the DPB Annual Return.
Lastly, the IFoA has so far received comparatively few complaints about DPB firms during the life of the DPB scheme, but the complaints it is asked to handle can have the potential to have a significant impact on the parties involved, including both the complainant and the respondent firm. Our proposals to improve complaint handling practices, including by making them quicker and more responsive, are therefore expected to benefit any future complainants and respondent firms, helping to ensure they also know where they stand in terms of the process and can expect a fair outcome.
Respondents should also be aware that there may be some consequential amendments resulting from the proposals to the Actuarial Profession Standards (APS).
You can respond on behalf of an organisation or provide a personal response.
Please provide your response with the (one of the following):
The deadline for responses is 17 May 2024.
Once the consultation has closed, the IFoA will reflect upon the feedback and publish more specific details of any proposed changes.
Depending on the level and detail of responses, additional stakeholder discussions may be organised. To help us gauge interest in discussing our proposals further in an individual capacity, we would be grateful if you could inform us of your interest via email at dpb@actuaries.org.uk.
If you have any queries please contact
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