SA formalise the role of actuaries in banking

In recognition of the leading role that South African actuaries are playing in establishing banking as a formal actuarial practice area around the globe, the newly established Banking Working Group of the International Actuarial Association (IAA) is to be chaired by South Africa for the next three years.

This was confirmed at the inaugural meeting of the IAA Banking Working Group, held in Cape Town this past weekend.

Michael Tichareva, a passionate proponent of actuarial practice in banking, will represent South Africa in the position of chair. A seasoned banking actuary, he also chairs the Actuarial Society of South Africa’s Banking Committee.

Tichareva explains that involving actuaries in banking is a relatively new trend sparked mainly by global regulatory reform initiatives. These include the introduction of the Basel II and III banking regulations and the recent changes in international accounting rules that require a forward-looking approach to credit loss provisioning. 

“A sound banking system is one of the cornerstones of a stable economy and a country’s financial markets. Since risk management is a key component of an actuary’s skill set, banks have increasingly been looking towards the actuarial profession to provide the resources needed to assess risk in banking and implement the necessary controls.”

The South African banking industry employs close to 300 actuaries and student actuaries (excluding those in insurance subsidiaries and divisions) even though banking was not formally recognised as an actuarial practice area in South Africa until a few years ago. This meant that there were no banking specific qualifications available for actuaries interested in specialising in banking.

“Actuaries were forced to enter the world of banking equipped only with the skills needed for traditional fields such as long-term insurance, general insurance, healthcare, employee benefits and investments,” explains Tichareva. 

However, actuarial standards of practice in banking have evolved to such an extent that the Actuarial Society of South Africa has been able to develop comprehensive course material on this subject.

In a historic world first, the Actuarial Society of South Africa therefore introduced Banking as a sixth Fellowship subject. The first group of South African actuarial students wrote the Banking Fellowship examination in October last year and the second and third groups wrote in May and October this year. The Banking exam will be taken twice a year.

“As a result, South African banks now have access to a pool of actuaries trained and qualified in managing risks unique to the banking industry,” he says.

South Africa remains the only country where actuaries are offered a banking specialist subject, according to Tichareva. High on his agenda for the next three years as chair of the IAA Banking Working Group is to work towards changing this.

He explains that one of the key roles of the IAA Banking Working Group is to take a leading role in developing banking as an actuarial practice area internationally.

Furthermore, the role of the Banking Working Group is to provide input and guidance in the development of an education curriculum and professional guidance in banking among member associations.

Since South Africa has already declared banking a formal practice area and has developed and implemented Banking as a Fellowship subject, the Banking Working Group will rely heavily on South African expertise. It is not surprising then that five of the 19 members represented on the Group are South African.