Reynolds Porter Chamberlain's Michael Connor outlines the implications for managing agents and brokers under FSA regulation of the Lloyd's Market
Lloyd's is no longer self-regulating, indeed the Society of Lloyd's has become an authorised person under the Financial Services and Markets Act . From midnight, 30 November 2001, Lloyd's became part of the brave new world of financial servicesregulation. The Financial Services Authority (FSA) has assumed overall responsibility under the FSMA for the regulation of the Lloyd's Market.
Market participants, principally underwriters and Lloyd's brokers, might notice little immediate change to their regulation, but in the medium term changes may become evident.
The FSA has delegated much of its day-to-day monitoring, investigation and enforcement responsibilities to Lloyd's, adopting more of a supervisory approach. The FSA and Lloyd's have entered into a co-operation arrangement regarding the sharing of information and the co-ordination of action.
Lloyd's brokers are currently regulated by the General Insurance Standards Council (GISC).
The announcement at the end of last year that the GISC will be replaced as the regulator of general insurance by the FSA has the potential to alter brokers' regulatory landscape.
What underwriting managing agents can expect from FSA regulation
Agents are already subject to detailed requirements through Lloyd's framework of codes and byelaws, so change is likely to be less apparent to them.
However, Lloyd's is required by the FSA to demonstrate compliance by agents (and certain individuals) and to monitor the following:
This may change. Lloyd's has announced proposals to move towards a franchise approach to allow access to Lloyd's and its overseas licences. In this way the FSA is likely to take more responsibility for the regulation of Lloyd's.
What Lloyd's brokers can expect from FSA regulation
For Lloyd's brokers, FSA regulation is likely to signal greater change. GISC is a consumer protection focused regulator. The FSA regime concentrates on both consumer protection and market security.
The challenges facing underwriters and brokers are different, for agents at present it is more of an adjustment in emphasis to the new high level principles, although this could change. For brokers it might require an extensive review of their approach to regulatory issues to be ready for FSA regulation in 2004.