View from the Top
Toba or not Toba: that is the question
Terms of business agreements seem to be the latest hot topic, in particular for Lloyd's brokers, which have taken a somewhat haphazard approach to the issue. Contrary to the headlines, however, Lloyd's brokers are not entirely to blame for this state of affairs.
There is no specific Financial Services Authority rule that states wholesalers must have a Toba. Instead, Systems and Controls (SYSC) 3.1 states that: "A firm must take reasonable care to establish and maintain such systems and controls as are appropriate to its business." It is difficult, however, to see how this, together with the likes of Client Assets (CASS) 5.5.7 and Insurance Conduct of Business (ICOB) 2.4.2, can be adhered to without a written agreement. We (and many other Lloyd's brokers) have had Tobas in place with our retail brokers for many years - this being best practice under the general laws of agency - and it has been straightforward to adapt them to the FSA regime. Surprising as it may seem, many Lloyd's brokers have never had any formal written agreement with their retail brokers and some may have been slightly tardy in finalising them.
What is really stalling the process is not apathetic brokers but the wording of many managing agents' Tobas, with which most, if not all, Lloyd's brokers have taken issue. Many felt that certain managing agents were attempting to take advantage of the FSA rules to sneak into their Tobas some rather unsavoury requirements. When stalemate ensured in the run up to General Insurance Day, the advice to Lloyd's brokers from the London Market Insurance Brokers' Committee was either not to sign any Toba or to sign only the LMBC-produced wording - either being generally unacceptable to managing agents. As compliance officers' stress levels approached crisis point, the FSA stepped in and effectively gave the market six months to sort out the mess by delaying implementing the rules on commingling.
Because the market has not agreed on the wording (or even the headings) of Tobas, many Lloyd's brokers are unable to give their retail brokers the most important piece of information a Toba should contain, namely their position on risk transfer and the implications of CASS 5.5.81(4). The upshot is that many Lloyd's brokers are waiting for the wording to be agreed before embarking on the expensive and time-consuming task of distributing Tobas to their retail networks.
London eagerly awaits the Lloyd's Market Association's version of a 'standard' Toba between managing agents and Lloyd's brokers, which it has announced to be 'nearly ready', but it is unlikely anything much will change soon - and certainly not before more arguing in EC3.
Andrew Holman
Chief Executive
Holman's
Post Magazine 3rd March 2005
