COMP 1.5 Application to Lloyd's

The FSA has exercised its power under section 316 of the Act (Direction by Authority) to direct inCOMP 1.5.4 G - COMP 1.5.6 G1 that certain core provisions in the Act should apply to members of the Society of Lloyd's (an "insurance market direction"). The effect of the direction is that the FSA may, in relation to members, and in respect of insurance market activities carried on by them, exercise any of the statutory powers conferred by the provisions which are applied by the direction. Those include the powers in Part X to make general rules and give guidance and also the powers in Part XV to make rules for the establishment and operation of a compensation scheme. Accordingly this sourcebook makes provision for the payment of compensation by the FSCS in certain cases arising from insurance business carried on by members, and for raising levies on the Society.

The effect of COMP 1.5.2 R(4) and COMP 7.2.4A R, and subject to COMP 7.2.4 R(2), is that any recovery obtained by FSCS is retained by FSCS up to an amount equal to the cost to FSCS of paying compensation. To the extent that the Society is entitled to any part of the recovery (for example by agreement with FSCS) it is only paid out of any excess up to a maximum amount equal to that paid out of the Central Fund. Any recovery in excess of the compensation (including payment from the Central Fund) received by the policyholder is paid to the claimant in accordance with COMP 7.2.4 R regardless of whether the Society receives the full amount paid from the Central Fund.

1The insurance market direction in COMP 1.5.5 D is intended to protect the interests of policyholders and potential policyholders by:

1. (1)

   providing for the application of the compensation scheme in respect of contracts of insurance issued by members; and

2. (2)

   providing for the application of such other provisions of the Act as will enable the application of the compensation scheme to be effective in relation to insurance market activities carried on by members.

1Section 317(2) of the Act (The core provisions) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. In particular, with effect from 15 October 2003, references to a relevant person in Part XV of the Act include a person who was a member at the time the act or omission giving rise to the claim against him took place.

1The compensation scheme will not compensate members or former members if firms are unable to satisfy claims made in connection with regulated activities relating to their participation in Lloyd's syndicates. Separate rules and guidance are therefore needed.

1The arrangements referred to in COMP 1.5.8 R:

1. (1)

   will not compensate losses arising only as a result of underwriting or investment risk to which individual members or former members who were individual members are or were exposed by their participation in Lloyd's syndicates;

2. (2)

   may be restricted to compensation for losses arising out of fraud, dishonesty or failure to account; and

3. (3)

   should cover all regulated activities carried on by underwriting agents relating to Lloyd's syndicate capacity and syndicate membership.

1The arrangements referred to in COMP 1.5.8 R should have a governance structure that is operationally independent from the Society, but which is nevertheless accountable to the Society for the proper administration of the compensation arrangements.