Legislative Reform (Lloyd’s) Order 2008

I thank the Minister for that introduction to the order. The document produced by the Treasury was a model of clarity and comprehensiveness. I found it, for those of us who do not live our lives worrying about the minutiae of the way in which Lloyd's operates, a particularly helpful document. Given that I spent some time criticising the Treasury for not telling us what it was up to, it is only fair to say that this is a particularly useful piece of work. The governance proposals in the order seem to be perfectly sensible second-order changes and I have no comment on them. The two more significant changes are those in Articles 9 and 10. I can absolutely see the competition arguments for the Article 9 changes, expanding the number of people who can place business at Lloyd's. I am reassured by Lloyd's intent to require that additional people involved in the market have the same prudential standards as those of Lloyd's brokers. I hope that those standards will be in place when the order takes effect and be rigorously policed. I have rather more concerns about the second substantive change, removing the prohibition on associations between managing agents and Lloyd’s brokers. This provision, which is now being repealed, was introduced for a good reason, as there was a broadly perceived conflict of interest in the same organisation being able to undertake both functions. Once the changes have been made in Article 9, I can absolutely see why the changes in Article10 follow on, but there is a real danger that the same conflicts of interest as applied before will rear their heads again. I have received very detailed representations from an individual who felt—so far as I can see, quite fairly—that he lost out significantly as a result of those conflicts of interest being in operation before the change that we are now repealing. He is very concerned that, once this goes through, the regulatory regime will not be strong enough in practice to stop conflicts of interest re-emerging to the detriment of those doing business through Lloyd’s. I know that that concern was expressed by at least one of the people who made representations in the consultation process. How is this conflict of interest to be avoided in future? The answer is that Lloyd’s is putting some rules in place and the FSA will also be keeping an eagle eye on how the new system operates. I am concerned about whether the FSA’s eagle eye will be sharp enough and whether its oversight will be sustained sufficiently from the start to avoid the likely conflict of interest that will emerge. If it were possible for the happy situation to arise in which the FSA’s oversight was effective, I would absolutely be able to see why, from a competitive market position, Lloyd’s would benefit from this change, but I remain concerned that the FSA will not be able to undertake that oversight as effectively as we would like. There is no way, a priori, of knowing whether that will be the case, but I hope that the Treasury will keep a very close watch on matters and that the FSA will report regularly on how it is exercising its oversight in that area. There was a major scandal in this area in the past and we do not want another one.