Unfair competition is distorting the market for back office service provision at Lloyd's, it was claimed.

FSA rules require all regulated firms to "identify, assess, monitor and manage the risks in ...

Unfair competition is distorting the market for back office service provision at Lloyd's, it was claimed.

FSA rules require all regulated firms to "identify, assess, monitor and manage the risks inherent in the outsourcing relationship."

In practice this means syndicates have to rate their outsourcing contracts as a high, medium or low risk.

But according to market sources, Lloyd's believes that this is not enforced for syndicates' contracts with Xchanging Ins-sure Services (XIS) in the same way as for other providers.

But a spokesman for the FSA said the same principles should apply to XIS as its competitors.

If special status was being given to XIS, he said the decision to do so had been taken "outside the FSA."

He added that Lloyd's rules should be in accordance with those used by the FSA and it had not delegated to Lloyd's the power to give special status to XIS.

Both Lloyd's and the IUA own 25% of XIS. The rest is owned by Xchanging, funded by General Atlantic Partners.

John Dewen, chief executive of rival JMD Specialist Insurance Services, said XIS had an unfair advantage.

He said: "Our clients need to monitor our performance and report back to the FSA that they are comfortable that we are delivering the quality of service they expect and the FSA expects.

"I don't think the same service level agreements are in place so that managing agents can effectively monitor the service they are receiving from XIS."

XIS chief executive John Benjamin denied the accusation.

He said: "We do have contractual obligations with managing agents to hold something called a service review panel. That goes through all the service standards that we have to hit."

Service level agreements were being "further enhanced" he said in negotiations being held with the LMA.

"Standards are being agreed on behalf of all the managing agents and they are being negotiated collectively with the LMA. Service standards will be enshrined in contracts with each managing agent but they are being negotiated collectively."