Select Committee on Constitution Written Evidence

Memorandum by Names' Action for Compensation and Defence in Europe

  I understand that the House of Lords Constitutional Committee may be investigating the regulatory powers being exercised by the FSA.

  As you are doubtless aware, the European Commission has instituted infringement proceedings against the UK Government for its failure to apply European Directive 73/239, as modified by subsequent Directives, with regard to the regulation of Lloyd's. The "competent authority" of the United Kingdom that is supposed to regulate Lloyd's of London is the FSA. The failure of the FSA to fulfil that task is a matter of current investigation by the European Commission.

  I and others have provided a great deal of evidence to the Commission in support of the contention that neither the FSA nor prior competent authorities, the Treasury and the DTI, have regulated Lloyd's properly and that was why the Court of Appeal has made the finding that Lloyd's had no auditing system in place, as it was required, under Insurance Companies Acts of 1974 and 1982, to have. As a result of it not having an appropriate audit system in place which made provision for outstanding liabilities, 30,000 Names joined Lloyd's on the basis of Lloyd's misrepresenting the quality of the audit systems. The Court of Appeal having held that, it is an open question as to whether or not any Names are ever going to see any compensation for the loss they have suffered as a consequence of that misrepresentation.

  Key to the issues is whether or not it is permissible for the UK Government to delegate powers that should be administered by a competent authority of the United Kingdom to one of the regulated bodies, ie the Society of Lloyd's, a private society. On the face of it, the idea that a regulated body can itself be a regulator seems anomalous. It clearly did not work.

  Currently the FSA maintains that it does not have responsibility for a significant number of the managers involved in the conduct of Lloyd's business, and that it is not responsible for the protection of the Names and members of Lloyd's even though the amendment to the Directive in 1991 does maintain that the regulatory regime of 73/239 is intended to apply to the members of the Society as well as to policyholders. There therefore appears to be a lacuna in English law where the FSA disclaims a responsibility, the Government nominates the FSA as being the "competent authority" and the European Commission maintains that the Government has no competent authority exercising responsibility as required by the Directives.

  It seems to me it would be entirely proper for your Committee's review of the regulatory powers of the FSA to encompass these issues. If I and colleagues could be of assistance on giving evidence on the matter to your Lordships, we would be very happy to assist.

  I am enclosing a copy of a report I did for the European Commission in 2001 which might help you to understand the points I am making in more detail [not printed].

Christopher Stockwell

Chairman, NACDE

21 February 2003

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