Tuesday, 17 May 2011

More on IRM issues with Risk Function under Solvency II

The FSA presentation that appears to have caused the mild outrage with the IRM has actually already featured on this blog - at the time I didn't pick up any undercurrent of an attack on risk professionals in general, so I guess you had to be there.

Having reviewed the IRM's lobbying letter, it certainly has the tone of a rebuke ("recent debates have caused unnecessary confusion" being my favourite line). The presenter was a relatively big hitter at the FSA, so no reason to think this isn't the FSA party line.

What I noted from the rest of the letter was;
  • Felt that the directive is being interpreted to assume a CRO must have risk and actuarial skills
  • Rather harsh contention that the development of ERM-related actuarial qualifications shows that their profession does not provide "sufficiently broad training".
  • "Trend in the market" for hiring business-focused CRO's. Not substantiated, but having looked at the CVs of a couple of the CRO membership it does stack up.
  • Struggled to find an example where risk and actuarial have to collaborate at the moment, using Op Risk modelling as the easy case study.
  • Suggests that actuarial could not perform independent oversight of reserve risk, when via chinese walls or basic separation of duties one would think they could
  • "There have been suggestions that there are no suitable qualifications for risk management professionals" - this must have come verbally at the presentation, as I cannot establish this from the slides. If this was said or even insinuated it is pretty outrageous.
  • Ticklist of risk function attributes under Solvency II matches up largely with the Level 2 and 3 guidance
  • Strange comment that the IRM wants "further guidance" on what constitutes a fully effective risk function, presumably as the FSA and Solvency II views are perceived to have diverged.
I suspect there is a few miles left in this one...

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