The Financial Services Authority (FSA) is poised to break Lloyd's 314- year-old tradition of self-regulation and to take on the full-time role of market regulator in the future.
Discussions over the next few months will determine whether the FSA should monitor the conduct of market participants.
Since its creation in 1688, Lloyd's has been self-regulated. On 1 Dec-ember 2001, the FSA began to oversee its regulation to ensure policyholders are protected, but Lloyd's still maintained the right to fine, ban or discipline individuals and companies in the market for misconduct.
Market sources have revealed the FSA is now considering taking over these powers to have a more "hands on" role.
The change in governance relates to recommendations made by Lloyd's chairman Sax Riley. In January, his strategy group worked with management consultancy Bain & Co to suggest ways to modernise the market.
One proposal was that the existing regulatory and market boards and committees should be replaced by a single franchise board.
An FSA spokesman said: "We are keeping an eye on the reform processes and depending on the outcome. We would, if it were necessary, amend our regulation patterns to make it appropriate to work with the new situation at Lloyd's.
"If it means taking on more powers or any change, we will need to have a full consultation and cost benefit analysis."
Last month, Lloyd's director of regulation David Gittings was appointed director of the FSA's insurance firms division with effect from 1 April. It is thought Lloyd's will not identify his replacement until the meetings have concluded.
Gittings said: "It would be premature to comment about it at this time."
