The FSA is set to impose tough controls on Lloyd's operators because of fears over the independence of the proposed franchise system.
The proposed controls include:
A senior source close to the Tiner Project released this week said: "It's the $64,000 question: can the FSA rely on Lloyd's as a regulator when it is also a commercial franchise?
He added: "There are major concerns that Lloyd's will not be able to maintain its independence."
Lloyd's said the report was put together with its full collaboration and the measures are consistent with those adopted by the market.
The franchise structure will be adopted when CSG proposals are implemented. Under the proposals, the Society of Lloyd's, which administers the market, will be a franchise.
Currently, Lloyd's regulates the market under the Lloyd's Act. When the franchise system is adopted, a director will watch over the market.
The Tiner Project said arrangements about supervision of underwriting agents were agreed between Lloyd's and the FSA. It said the decision was particularly influenced by the "Lloyd's decision to adopt a new approach in managing and supervising the Lloyd's Market".
Michael Connor, solicitor with Reynolds Porter Chamberlain, said that under the franchise system there will be tension between the need to promote the market and regulate it. But, he said: "Lloyd's will probably welcome clear blue water developing between itself and the FSA as regulator."
The Tiner Project also revealed the FSA would consider bringing Lloyd's under the FSCS. It is understood the FSA is concerned that syndicates are becoming larger and fewer in number. A failure could put the Central Fund under too much pressure. If personal lines policyholders were covered by the FSCS the risk would be spread, said an FSA spokesman.
What the Tiner Project means for non-life
Areas of concern:
Outsourcing - controls over agreements and management
Computer systems - documentation of procedures and controls
Delegation - control of limits and authorities delegated to subsidiary companies, sub-committees, management and staff
Business continuity plans
Use of financial engineering to obscure underlying financial conditions
Key FSA points