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FSA faces consolidation or divestment quandary...
POST - View From The Top - 17 May 2006
The 1982 Lloyd’s Act was primarily introduced to improve the governance of Lloyd’s and, in doing so, introduced the principle of ‘divestment’ -forbidding Lloyd’s brokers and managing agents (underwriters) from having any sort of interest in the other.
It was introduced after a number of scandals, one of which involved certain certain of the largest broking groups channelling good business into their own syndicates and placing the poorer risks into the market. This should sound familiar as it was just the type of behaviour that Eliot Spitzer claimed the larger broking groups were up to in 2004, some twenty years later – plus ça change.
Although being some 25 years old, the divestment provisions are still relevant for two reasons. The first is that they are ostensibly still in place – although managing agents have many years got round them by operating service companies, which Lloyd’s turns a rather Nelsonian blind eye to. The second is that the divestment provisions were introduced on sound principles (although they addressed the symptoms, not the causes of malpractice.) Now that the Financial Services Authority is effectively the regulator of Lloyd’s, will they take the same view? While Lloyd’s has seemlingly outlawed the practice for 25 years, in the non Lloyd’s company market insurers are now busily buying up brokers in order to secure their distribution chains – not exactly a level playing field. But then, for the FSA to change the 1982 act would mean an act of Parliament, and there’s precious little chance of that taking place.
Meanwhile, it is interesting to reflect on how regulations themselves have evolved in recent years; from which you can draw your own conclusions. The 1982 Lloyd’s Act runs to only 34 pages, the Chancellor’s 2006 Finance Act (the Budget) runs to 517 pages – while current estimates put the FSA’s handbook at between 8800 and 20 000 pages long. Lloyd’s regulation might have had its faults, but at least verbosity was not one of them.
Andrew Holman, Chief Executive, Holman’s
