Lloyd's reforms get green light in fast-track procedure

The measures will also remove current restrictions on Lloyd's brokers and managing agents owning stakes in each other, although managing agents will have to disclose such interests in their syndicate business plans.

The committee was considering amendments to the 1982 Lloyd's Act set out in a draft legislative reform order laid before Parliament in July this year. The changes are being made under a fast-track procedure that enables the Government to amend certain types of legislation with minimum Parliamentary debate.

The proposals have already received strong support from consultees and from attendees at an extraordinary general meeting of Lloyd's members held in May.

The broker reforms attracted most comment. Under current rules, Lloyd's managing agents are generally only allowed to do business through a registered Lloyd's broker, who will have gone through a special admissions process in addition to obtaining authorisation from the Financial Services Authority.

The changes to the Act will allow managing agents to deal with any intermediary, whether a Lloyd's broker or not. The designation 'Lloyd's broker' would be retained, however, and Lloyd's will be able to set the standards to be met by non-Lloyd's brokers operating in the market.

Concerns that de-regulation might result in falling standards have been allayed by assurances from Lloyd's that the same standards will be required of brokers 'across the board'. An initial impact assessment had to be withdrawn, however, when it could not be shown that the measure would achieve actual costs savings.

The committee concluded: "Our view is that, notwithstanding the lack of agreed quantified benefits, the opening of the market to greater competition is broadly to be welcomed as being in the public interest and in the interest of development of that market, that the proposal strikes a fair balance with those potentially adversely affected and that it would remove a burden."

The reforms will also update some of Lloyd's governance provisions. For instance, it will no longer be necessary for the chairman and deputy chairman of Lloyd's to be elected only from the working members of the Lloyd's Council.  

Recommending the draft proposals be approved, the committee commented: "The timing with which this particular order falls for our consideration is noteworthy in that the regulation of financial bodies is currently a matter of extensive discussion".

"Our assessment of the order is based entirely on the merits of the proposed six governance reforms and two market-related reforms contained therein. These are specific to Lloyd's and have no direct connection with present conditions in financial markets," it said.

The reform order will still need to be sanctioned by both Houses of Parliament before it becomes law. But the amount of time allowed for debate under the regulatory reform procedure is limited and depends on the conclusions reached by the committee considering the draft.

Where, as in this case, the committee unanimously recommends that the draft order is approved, the motion will be put before Parliament without debate.

Once passed, the effect of the order will be reviewed in five years' time.