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.
1Notwithstanding anything to the contrary in this sourcebook, in relation to the Society, members and Lloyd's policies FSCS must act, so far as is reasonably practicable, to ensure that:
- (1)
Eligible claimants have protection under this sourcebook in relation to Lloyd's policies equivalent to that otherwise afforded to eligible claimants by the FSCS;
- (2)
FSCS does not meet claims in relation to Lloyd's policies unless the Central Fund is unlikely to be able to meet them;
- (3)
Claims against members under the compensation scheme which arise from the same loss under the same Lloyd's policy must be treated as a single claim;
- (4)
any recovery resulting from the exercise of any rights assigned to the FSCS in connection with the payment of compensation to an eligible claimant, is treated by the FSCS in accordance with COMP 7.2.4 R, and any such recovery which is not paid to the claimant in accordance with that rule, is used for the benefit of FSCS in priority to any interest that the Society may have.
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.
Compensation arrangements for policyholders
1The insurance market direction in COMP 1.5.5 D is intended to protect the interests of policyholders and potential policyholders by:
- (1)
providing for the application of the compensation scheme in respect of contracts of insurance issued by members; and
- (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.
1With effect from 15 October 2003 the following core provisions of the Act apply to the carrying on of insurance market activities 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.
Compensation arrangements for individual members
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 Society must maintain byelaws establishing appropriate and effective arrangements to compensate individual members and former members who were individual members if underwriting agents are unable, or likely to be unable, to satisfy claims by those members relating to regulated activities carried on in connection with their participation in Lloyd's syndicates.
1For the purposes of COMP 1.5.8 R "individual member" includes a member which is a limited liability partnership or a body corporate whose members consist only of, or of the nominees for, a single natural person or a group of connected persons.
1The arrangements referred to in COMP 1.5.8 R:
- (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)
may be restricted to compensation for losses arising out of fraud, dishonesty or failure to account; and
- (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.
1A contravention of COMP 1.5.8 R does not give rise to a right of action by a private person under section 150 of the Act (Actions for damages) and that rule is specified under section 150(2) of the Act as a provision giving rise to no such right of action.