Written evidence from Jeffrey Brown LDI0012
UK Parliament – Call for Evidence – Defined benefit pensions with liability driven investments (November 2022)
1. | I qualified as a Fellow of the Faculty of Actuaries in 1986 and held a Scheme Actuary Certificate until December 2018. I resigned my membership of the Institute and Faculty of Actuaries in 2021.
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2. | My primary reason for my submission is because I believe the Institute and Faculty of Actuaries (IFoA) failed to protect the public interest (a requirement of IFoA's Royal Charter) by failing to include an appropriate warning to Pension Scheme Actuaries in IFoA's published Risk Alerts.
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3. | I also believe that the Financial Reporting Council, the body charged with Regulatory Oversight of IFoA, failed to discharge their duty by failing to instruct IFoA to issue a Risk Alert on the subject of Leveraged LDI strategies.
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4. | A secondary reason for my submission is that I have irrefutable documentary evidence of a serious failure of governance at the very highest levels within IFoA. This failure can only be described as a breach of the IFoA Royal Charter. I have no doubt that IFoA Council is hiding activity which, at best, is highly unethical, or at worst, is simply illegal. One reason for my submission is to expose this serious failure of governance within IFoA.
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5. | Another secondary reason for my submission is to expose the inappropriate relationship between the FRC and IFoA.
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6. | I am aware of at least five other individuals who share my concerns about IFoA Governance failures. I suspect there are others. I would like to draw your attention to the RICS governance sandal[1] and the fact that IFoA General Counsel, Mr Ben Kemp is also involved in a professional capacity with RICS[2].
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7. | Role of Scheme Actuary
TAS300[3] describes the professional duties of the Scheme Actuary. An extract from TAS300 is given below:-
If pension scheme actuaries did not comment on LDI strategies, it is a reasonable to conclude that the average pension scheme trustee could be forgiven if they considered LDI to be risk-free.
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8. | IFoA publish "Risk Alerts"[4]. In my opinion it is more than absurd that IFoA expects a scheme actuary to consider risks associated with climate change but fails to mention leveraged LDI strategies based on derivatives.
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9. | There is ample material readily available on the internet about the dangers of complex investment products. It is inconceivable that IFoA were not aware of the risks associated with derivatives and leverage. Similarly, it is also inconceivable that FRC was not aware of the risks associated with complex investment products. A simple google search is shown below:-
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10. | IFoA should be asked to explain why Leveraged LDI was not on IFoA's risk radar. Similarly, FRC should be asked to explain why they believed it was acceptable that IFoA did not include leveraged LDI on the IFoA's Risk Alerts.
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11. | The Financial Reporting Council is responsible for the regulatory oversight of IFoA. Based on my experience of FRC oversight, it is my firm opinion that the relationship between FRC and IFoA is more akin to friendly associates instead of effective regulatory oversight. As evidence to support my view about the friendly relationship between FRC and IFoA I have attached my email to Sir Jonathan Thompson dated 5 November 2021 (appendix). Despite irrefutable documentary evidence proving my allegations, FRC dismissed my complaint. Sir Jonathan did not answer the questions in my email.
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Jeffrey M. Brown
Fellow of the Faculty of Actuaries (1986-2021)
Appendix
[attachments available on request]
Open letter to Sir Jonathan Thompson, FRC
Scottish Government case reference 202100251080
05 November 2021
Dear Sir Jonathan
Investigation into my complaint about the Institute and Faculty of Actuaries
Thank you for your email and letter dated 03 November 2021.
You say that you know I am disappointed by the FRC's decision. This is partly correct. I am also greatly relieved. This may come as a surprise because until now I was giving the FRC the benefit of doubt and I was still giving credence to the possibility that the FRC was an effective and independent Regulator. Given the simplicity of my complaint I believed the FRC would do their job and recognise the deceit in the IFoA's preposterous claims that the allegations included in my 07 October 2019 email (attached) had been investigated in full.
I now have no doubt whatsoever that the FRC's regulatory oversight of the IFoA is a sham. I know my opinion is shared by others. I shall also be making this point to the Scottish Minister who is copied on this correspondence and my local MP.
Initially, I was intending to describe the FRC's investigation as "flawed". It soon became evident to me that the word "flawed" is inappropriate. "Flawed" would suggest a minor blemish or accidental oversight in good faith. In my opinion, the FRC investigation has been carried out with the malicious and devious intention to mislead a casual reader.
My complaint is very simple and I would expect a competent and independent Regulator to proceed as follows:-
Step 1...identify the 3 allegations set out in my 07 October 2019 email (attached) to the IFoA.
Step 2..examine the contents of the IFoA AP report dated 05 June 2020 (attached) and confirm the existence (or otherwise) of the AP's decisions in relation to Step 1.
Step 3...having identified from Step 2 that the AP decisions do not exist, the only possible conclusion is that the allegations (Step 1) were not investigated.
Step 4...having identified from Step 3 that my allegations were not investigated, the only possible conclusion is that any statement suggesting the allegations were investigated must be false.
Step 5...having identified from Step 4 that any such statements were false, is there any evidence to suggest that the false statements were given in good faith.
Step 6 ...if there is no evidence to suggest that any false statements were given in good faith, the only remaining conclusion is that the false statements were made in bad faith and the originator knew that the statements were false.
The FRC investigation is a classic example of a Kangaroo Court. My evidence for this is very simple:-
1. The key evidence supporting my complaint consists of my email to the IFoA dated 07 October 2019 (attached) and the IFoA AP report dated 05 June 2020 (attached); the FRC's investigation is totally silent on this key evidence. The classic Kangaroo Court ignores any evidence that is inconvenient to the desired outcome.
2. The FRC investigation refers to irrelevant and superfluous documents which are described as "evidence". For example, what is the relevance of the FRC's statement to the number of my emails? The classic Kangaroo Court introduces irrelevant "evidence" to give the illusion that they are carrying out a detailed study and can refer to "evidence" (or the lack of) to justify their decisions.
QUESTIONS
In light of the above can you therefore please answer the following questions:-
1. Do you agree that the only evidence that is relevant to determine the merits of my complaint include (i) my email to the IFoA dated 7 October 2019 (attached) and (ii) the report prepared by the Adjudication Panel dated 05 June 2020? If not, please state your reasons.
2. Do you agree that the FRC investigation has not included any commentary on the two documents identified in Question (1) above? If not, please state your reasons.
3. Do you agree that the Decisions documented in the AP report do not refer to any of the allegations listed in my email dated 07 October 2019? If not, please state your reasons.
4. Do you agree that the absence of any decisions in the AP report referring to my allegations dated 07 October 2019 means that the IFoA did not investigate my allegations? If not, please state your reasons.
5. Do you agree that the IFoA's statements which claim that my allegations had been investigated in full in accordance with their Disciplinary Rules are false? If not, please state your reasons.
6. Do you agree that there is no evidence to suggest that the IFoA's claim that my allegations have been fully investigated were made in good faith? If not, please state your reasons.
7. Who instructed IFoA Head of Disciplinary to drop the allegations described in my email dated 07 October 2019? If you do not know the answer to this question please explain why the FRC has failed to obtain this information.
8. What reasons were given to IFoA Head of Disciplinary to drop my allegations dated 07 October 2019? If you do not know the answer to this question please explain why the FRC failed to obtain this information.
9. Do you agree that an effective Regulator should be able and willing to answer any question relating to an Investigation Decision. If not, please state your reasons.
I look forward to receiving your reply at your earliest convenience.
Yours sincerely
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