Applications of rules to the Society


The Society is the society incorporated by Lloyd’s Act 1871, by the name of Lloyd.


With effect from 15 October 2003, the PRA’s predecessor exercised its power under section 316 of FSMA (Direction by a regulator) to direct in Rule 3.1 of the Lloyd’s Part that certain core provisions in FSMA should apply to members of the Society (an insurance market direction). The effect of the insurance market direction is that the PRA may in relation to members, and in respect of insurance market activities carried on by them, exercise any of the statutory powers conferred by the provisions which are applied by the direction. Those include the powers in Part 9A to make general rules and give guidance and also the powers in Part XV to make rules for the establishment and operation of a compensation scheme.


If the FSCS levies the Society, the PRA expects the FSCS to apply the rules in the Policyholder Protection Part which makes provision for the payment of compensation by the FSCS in certain cases arising from insurance business carried on by members and apply the rules in Chapter 21, the FSCS Management Expenses Levy Limit and Base Costs Part and the Management Expenses in respect of Relevant Schemes Part which make provision for raising levies on the Society.


The effect of Rules 2.7(4) and 14.5 of the Policyholder Protection Part (which are subject to Rule 14.4) is to set out the PRA’s expectation of how recoveries are paid in respect of the Society. Any recovery obtained by the FSCS is retained by the FSCS up to an amount equal to the cost to the FSCS of paying compensation. To the extent that the Society is entitled to any part of the recovery (for example, by agreement with the FSCS), it is only paid out of any excess up to a maximum amount equal to that paid out of the Central Fund. Any recovery in excess of the compensation (including payment from the Central Fund) received by the claimant from the FSCS is paid to the claimant regardless of whether the Society receives the full amount paid from the Central Fund.


The insurance market direction in the Lloyd’s Part is intended to set out the PRA’s expectation of how the FSCS should protect the interests of policyholders and potential policyholders by:

  1. (a) providing for the application of the Policyholder Protection Part in respect of contracts of insurance issued by members (or where applicable, members that are successors) or a managing agent on its behalf; and
  2. (b) providing for the application of such other provisions of FSMA as will enable the application of the Policyholder Protection Part to be effective in relation to insurance market activities carried on by members.


Section 317(2) of FSMA (The core provisions) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. With effect from 15 October 2003, references to a relevant person in Part XV of FSMA include a person who was a member at the time the act or omission giving rise to the claim against a member took place. See Rule 3.1 of the Lloyd Part.


The PRA does not expect the FSCS to compensate members or former members (or where applicable, members that are successors) if firms are unable to satisfy claims made in connection with regulated activities relating to their participation in Lloyd’s syndicates. The PRA expects the arrangements, referred to in Rule 4.1 of the Lloyd’s Part, to have a governance structure that is operationally independent from the Society but which is nevertheless accountable to the Society for the proper administration of the compensation arrangements.