Select Committee on Regulatory Reform Sixth Report

Appendix 1

Letter from Inquiry Manager of the Committee to HM Treasury: request for information

After an initial review of the LRO and accompanying documents, the following is a list of preliminary questions relating to the order. I shall be reviewing the consultation documents in more detail over the course of the next weeks and will almost certainly have more questions after that further review. However, the initial questions are these:

  • How does the Treasury justify the abolition of the current restriction that only Lloyd's brokers can act as intermediaries in the placing of business with underwriters, given that the financial part of the cost-benefit analysis with respect to that proposal has now effectively been removed as a result of criticisms made during consultation? There is an assumption that review of the implemented proposal after two or three years will show benefits, but at least one consultee has challenged that assumption. What is the concrete basis for it?

  • How does the Treasury respond to the criticism that the proposed means of managing conflicts of interest will not adequately replace the divestment provisions that were a crucial element of the 1982 Act and that the draft order should be modified to attach a specific code for managing conflicts of interest? In particular, how does the Treasury respond to criticisms in consultation that the FSA will not be able properly to monitor conflicts and that the proposed code is inadequate?

  • Why have the governance and market reforms been presented as a package that must stand or fall together, when on the face of it the market reforms (which seem to be the more controversial of the two classes of proposal) are self-standing and could form part of a more extensive and fully debated private bill for more wide-ranging reform of Lloyd's?

  • Given the potential position of nominated members in casting deciding votes in the Lloyd's Council, how does the Treasury respond to the argument that the FSA should have more than a mere rubber-stamping duty in relation to their appointment if it replaces the Bank of England as the body with responsibility for endorsing such appointments?

  • How does the Treasury answer the criticism made by some consultees that the proposed governance changes are merely an expedient to extend the chairmanship of the current Chairman? Will the Treasury confirm the origin of the proposals, whether they have been amended since inception and, if so, in what way and by whom?

  • Please provide a comprehensive table indicating the aims and functions of each of the various bodies representing individuals, associations and organisations with an interest in Lloyd's (including, for example, the major informal associations of underwriters and names), to allow evaluation of whether the consulted parties represent a proper cross-section of interested bodies.

  • Please provide a detailed comparative explanation setting out the equivalent divestment/conflict of interest provisions and intermediary restrictions that apply to Lloyd's major competitor bodies and jurisdictions and any current proposals for reform thereof.

  • What are the powers of the Lloyd's Chairman compared with the Deputy Chairman, and of each compared with the Council? Can the Council overrule the Chairman and Deputy Chairman acting together or separately and, if so, by what mechanism? Does either the Chairman or Deputy Chairman have a casting vote in Council?

  • What is the formal mechanism of delegation of power to the Franchise Board and the precise reasons why the current Committee could not be reconstituted as the Franchise Board.

In the interest of receiving full answers to the above questions, and given that it is the vacation period, I suggest Friday 8 August as the appropriate date for provisions of responses to the above questions. I shall assume that that is acceptable unless I hear from you.

22 July 2008

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