Lloyd's tightened the regulatory noose on the market again this week by introducing a new law that gives shoddy underwriting agents six months rather than two years to reach set standards.
The latest clampdown follows last week's bombshell that nine underwriters are potentially facing the chop because of their poor trading records.
Lloyd's has been slowly introducing measures over the past two years to rid the 300-year-old market of its archaic and loose practices.
The Council of Lloyd's can now withdraw permission to act as an underwriting agent within six months of deciding the agent's performance is unsatisfactory, compared with the previous two-year waiting period.
Factors that will be taken into account when deciding whether to let an agent continue, include the effect
of its performance on the overall
reputation of Lloyd's and the agent's compliance with Lloyd's regulations.
Nine underwriters were recently warned that their bad underwriting records could cause them to lose their right to trade. Managing agents employing some of the underwriters have already said they intended to take appropriate action.
The director of Lloyd's regulatory division, David Gittings, admitted this latest action was part of Lloyd's drive to protect its reputation.
“It is further tightening up,” he said. “This process will run alongside the one for underwriters.”
But a leading lawyer has raised doubts about the legality of Lloyd's latest punitive actions.
Tim Brentnall, senior partner at Elborne Mitchell, said a number of issues had been raised. “My concerns about what is happening at the moment are really three-fold,” he said.
“The first issue is whether or not what the regulators are doing contravenes the Competition Act 1998.
“By seeking to take action against syndicates in the bottom quartile, Lloyd's is interfering in a free market.”
Brentnall said the second issue was whether Lloyd's was asking those it had contacted to incriminate themselves, thus reversing the legal burden of proof.
“If Lloyd's has a complaint to make, that must be fairly put and people must have a chance to respond to an independent tribunal,” he said.
The third issue raised by Brentnall was whether Lloyd's was following its own procedures. He said those that were said to be underperforming needed guidelines.
“You can't just say to someone ‘we don't think you are a fit and proper person because you are in the bottom quartile'. You've got to give them a target they can aim at and meet.”
Gittings said he was not concerned with any legal challenges to the latest sanctions. “If we have to have a battle we'll have a battle,” he said.
“We have legal challenges which-ever way we move. It is more important to our clients to be seen to be running a tight ship.”