The rules and guidance in this chapter are intended to promote confidence in the market at Lloyd's, and to protect consumers of certain services provided by the Society in carrying on, or in connection with or for the purposes of, its regulated activities. They do this by ensuring that the Society continues to maintain adequate and effective compensation arrangements for individual members and former members who were individual members in respect of claims against underwriting agents (other than claims for losses arising only from underwriting or investment risk).

The 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 required.

The arrangements referred to in LLD 8.2.1 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.

The arrangements referred to in LLD 8.2.1 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.

If the Society proposes to extend the scope of the losses covered by the arrangements referred to in LLD 8.2.1 R (beyond those resulting from fraud, dishonesty or failure to account), it should have regard to the types of losses covered by the compensation scheme.

In setting the limit of compensation payable for a single loss, and whatever co-insurance should apply, the Society should have regard to the compensation payable by the compensation scheme for similar claims relating to similar regulated activities.

The Society should consult interested parties on proposed changes in the byelaws establishing the arrangements referred to in LLD 8.2.1 R.

The Society should give the FSA adequate notice of all changes it proposes to make to the byelaws establishing the arrangements referred to in LLD 8.2.1 R.