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A Primer on Rule 13

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By Dave Dickson, FCIA

Recently, the Eligibility and Education Council (EEC) adopted a guidance document relating to the changes that were made to Rule 13 last year. The document, which can be found here, helps the EEC and, more specifically, the Practice Council and its committees to be consistent in how they respond to inquiries from members.

This article provides an overview of Rule 13 and the process that is followed when a member becomes aware of a material noncompliance by another member.

What is Rule 13?

Rule 13 is part of the Rules of Professional Conduct of the CIA. It deals with situations where a member becomes aware of apparent material noncompliance with one of our rules or standards of practice by another member.

What has changed?

The new version is more straightforward and written as a statement of principles instead of a detailed procedure. Although the new version strongly encourages discussion and resolution between actuaries before resorting to the Committee on Professional Conduct (CPC), this no longer constitutes an absolute requirement. The new version also ensures confidentiality of the consultation process when a member wishes to discuss particular situations with the chairs of a practice committee.


What does it require?

If you become aware of material noncompliance by another member, Rule 13 requires that you attempt to discuss the situation with that member and try to resolve it. If you cannot resolve the issue you are then required to report the apparent noncompliance to the Committee on Professional Conduct. There are exceptions, such as when the reporting would be contrary to law or when the member is acting in an adversarial situation.

The other exception is that a member can contact a chair or vice-chair of the appropriate practice committee and discuss potential non-compliance with a standard; in those situations the chair or vice-chair is not allowed to bring the matter to the CPC. Note this does not apply if the discussion relates to the non-compliance with a rule or if the non-compliance with a standard could be assimilated to gross negligence; in those situations the chair or vice-chair would be required to discuss the situation with the member and to bring the matter to the CPC if it is not satisfactorily resolved.

What does "resolution" of the noncompliance look like?

Resolution of the noncompliance can take different forms. For example, after discussion between the members it may be determined that the noncompliance was not real or material, or the member may admit to the noncompliance, correct the work, and notify the affected users.

Are there any exceptions?

Yes, the CIA Board can designate positions that are exempt from Rule 13. As an example, the members of a pension review task force established to review pension plan valuation reports are exempt, as well as members working for regulators.

Can a member who has a question about a standard seek advice?

Yes, a member with a question about a standard can discuss it with the chair or vice-chair of the Practice Council or the appropriate practice committee. The discussion is confidential and the chair or vice-chair cannot report the matter to the Committee on Professional Conduct.

Please provide a few examples.

  • A member working for a pension consultant has taken on a new client, one transferred from another consulting firm. In reviewing the previous valuation, the member discovers an apparent material error in the work. Once corrected, there would be a significant change to the required future contributions of the client. Under Rule 13, the member would be required to attempt to discuss the situation with the previous consulting actuary. If it could not be resolved, the member would be required to report the matter to the Committee on Professional Conduct.
  • A member doing some work for a small insurance company reviews the previous Appointed Actuary’s report and discovers that some recent standards had been applied to the work incorrectly. If the standards had been applied correctly there would have been a significant change to the amount of surplus. Under Rule 13 the member would be required to attempt to discuss the situation with the member who signed the report. If it could not be resolved the member would be required to report the matter to the Committee on Professional Conduct.
  • A member working for a life insurance company joins the company’s pension committee. In reviewing some past work, the member discovers that another member, working as a consultant to the committee, had recommended an investment firm the committee could use. The committee decided to use that firm. The member knows the other member regularly does work for the investment firm that was recommended. Also, the other member did not apparently report this potential conflict of interest to the committee when making the recommendation. Our Rule 5 does not allow us to perform work involving an apparent or actual conflict of interest, with some exceptions, such as if the conflict had been properly disclosed and documented. Under Rule 13 the member would be required to attempt to discuss the situation with the other member. If it could not be resolved the member would be required to report the matter to the Committee on Professional Conduct.
Summary

Rule 13 is an important rule which promotes the profession’s duty to the public above the needs of the profession and its members. Members should be knowledgeable of all of the Rules of Professional Conduct, including Rule 13.

It is important to also understand that Rule 13 does not require members to search out possible violations with our rules or standards. Rule 13 only applies if members become aware of situations but there is no requirement to go looking for them.

Members are encouraged to review the guidance document referred to in the opening paragraph.

Questions

Part of the EEC’s mandate is to provide interpretative opinions on the Rules of Professional Conduct, and present recommendations to the Board concerning the repeal, re-enactment, alteration, or addition of rules. Questions about this article may be directed to the Secretariat or the chair of the EEC.

Dave Dickson, FCIA, is Chair of the Eligibility and Education Council (EEC).
 

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