Navigation path

Left navigation

Additional tools

Other available languages: FR DE


Brussels, 15th October 2003

Insurance: Commission closes infringement procedure concerning regulation and supervision of Lloyd's

The European Commission has decided to close its formal infringement proceedings into the regulation and supervision of the Lloyd's insurance market in accordance with the European Insurance Directives, and in particular the first non-life insurance Directive (73/239/EEC). The Directive aims principally to entrust public authorities with a duty to effectively supervise insurance undertakings. In December 2001 the Commission launched these proceedings by sending the UK authorities a letter of formal notice (see IP/01/1880) which identified concerns with the regulatory and supervisory regime for Lloyd's in force at that time. The UK authorities, however, subsequently informed the Commission of a new regime for the regulation and supervision of Lloyd's established under the Financial Services and Markets Act (FSMA) 2000, which had entered into force also in December 2001. Whilst recognising the improvements achieved through the new regime, the Commission still had some residual concerns over compliance with certain requirements of the non-life insurance directives. The Commission therefore sent a supplementary letter of formal notice in January this year (see IP/03/97) to verify that the current supervision and regulation of Lloyd's is fully in line with the requirements of the Directives. In the light of the further clarifications provided by the UK authorities, the Commission is satisfied that those aspects of the regulatory and supervisory regime for Lloyd's under examination are now compatible with the requirements of the Directive.

Commenting on this decision, Internal Market Commissioner Frits Bolkestein stated that "We have completed and closed our investigations into this complex and sensitive file. I believe that the Commission's infringement proceedings have had a strong influence in the development of a new legal framework in the UK for the regulation and supervision of Lloyd's that is in line with the requirements of the EU insurance Directives. As regards the situation before the introduction of the FSMA 2000 legislation, we have always and repeatedly made clear to complainants that any action seeking damages for alleged incompatibility under the former regime must be undertaken exclusively before UK Courts. We are very much aware of the keen interest of the European Parliament in this file and I would like to underline that the Commission has always sought to keep Parliament fully informed since the start of our enquiries. I would therefore like to stress that the Commission will continue to co-operate fully with Parliament in any deliberations it might undertake, subject of course to the respect of any legal constraints imposed on the Commission, in particular in relation to access to certain documents."

First letter of formal notice

In its first letter of formal notice requesting information (see IP/01/1880) the Commission set out its concerns about the prudential regulation and supervision of Lloyd's. These concerns related primarily to the auditing arrangements and to ensuring that national authorities undertake the verification of the state of solvency of an insurance undertaking's entire business, in accordance with Article 13(2) of Directive 73/239/EEC, as amended by Directive 92/49/EEC.

By letter dated 30th April 2002, the UK authorities submitted a comprehensive response to the first letter of formal notice. However, in parallel they also informed the Commission that a revised framework for the regulation and supervision of Lloyd's had come into force in December 2001 under the Financial Services and Markets Act (2000).

The Commission recognised that several changes have been introduced through the new FSMA 2000 regime. Indeed, the UK Financial Services Authority (FSA) now has much wider powers over Lloyd's, the reporting and auditing arrangements are tighter and the FSA should be more extensively informed about the risks being faced by the Lloyd's market.

Supplementary letter of formal notice

Nevertheless, the Commission decided to require further clarifications with respect to: solvency verification at the level of Lloyd's overall accounts, certain internal rules or bye-laws adopted by Lloyd's under its self-regulatory powers and the role of the Lloyd's Actuary. In addition, clarification was sought on the application within Lloyd's of 'fit and proper criteria for managers' under Article 8(1)e of Directive 73/239/EEC, as amended by Directive 92/49/EEC.

Consequently, in January of this year the Commission sent a supplementary letter of formal notice to the UK authorities seeking clarification on the above points. (see IP/03/97).

Assessment of UK response to supplementary letter of formal notice

In the light of the comprehensive UK reply dated 24th March 2003, and the further clarifications provided by UK officials at a meeting on 20th May 2003 and confirmed in writing by letter dated 27th May, the Commission considers that the current UK legislation is now compliant with those requirements of Directive 73/239/EEC under investigation.

These investigations have focussed on the verification of solvency and auditing arrangements, the adequacy of the administrative and accounting procedures and the internal control mechanisms (as required under Articles 13(2) and (3), 15(1), 16(1), 19(1) and 19(2) of Directive 73/239/EEC), the transposition and application of the 'fit and proper' criteria under Article 8(1)(e) of the same Directive and the general compatibility of self regulation at Lloyd's.

After thorough examination, the Commission is satisfied with the detailed clarifications and explanations provided by the UK authorities. These cover the regulatory and supervisory arrangements for Lloyd's, as currently set out in the relevant UK legislation and in particular in the Lloyd's Source book (notably Chapters 9 to 14 of the Lloyd's Source Book covering Prudential Requirements, Insurance Operational Risk, Required Margins of Solvency, Determination of Liabilities, Assets and Reporting by the Society), which sets out the detailed FSA rules applicable to Lloyd's.

The clarifications also cover the detailed processes established by the FSA and Lloyd's for solvency verification, which are subject to independent audit and reporting to the FSA. In particular solvency verification is undertaken on the basis of the extensive supervisory returns required by the Lloyd's Source book and not on the basis of the Lloyd's global accounts. The UK has clarified that the requirements on 'fit and proper' apply to all relevant persons in the Lloyd's market under Sections 20, 21, 22 (incl. Schedule 2 para. 21), 40, 14 (incl. Schedule 6, paras 1 to 5), and 315 to 319 of FSMA.

With regard to self regulation, the UK authorities have confirmed that although the Society of Lloyd's may adopt bye-laws as the operational means of ensuring compliance with FSA obligations, such Lloyd's bye-laws cannot countermand the FSMA, FSA rules made under it, or other UK legislation.


The Commission has also considered the residual financial relationship between Lloyd's and Equitas, the group of reinsurance companies established as part of the Lloyd's Reconstruction and Renewal Plan in the mid-1990s. In response to complaints, a specific and informal request of information was sent to the UK authorities in January of this year. A detailed and extensive response to this request was given by the UK authorities by letter dated 20 May 2003.

The Commission is now satisfied that this is being properly monitored and audited, under FSA supervision.


In July the Commission wrote to all complainants, as well as to persons who had petitioned the European Parliament in connection with its enquiries, informing them of its intention to close the file and seeking their comment. A large number of responses were received but these have not led the Commission to change its assessment of the compatibility of the new regime. Indeed, comments related primarily to the regime for Lloyd's applicable prior to the FSMA 2000.

As regards the regime applicable to Lloyd's prior to the entry into force of the FSMA, the Commission has already clearly and publicly indicated that the objective of infringement proceedings under EU law is to establish or restore the compatibility of national law with EU law - and not to rule on the past compatibility or incompatibility of a national law.

Side Bar