London’s Financial Times carries a report that the European Commission has completed a preliminary investigation of Lloyd’s operations and may well “open formal proceedings against the UK government” concerning deficiencies in its regulation of the Lloyd’s market.
The investigation was triggered by the severe economic consequences suffered by numerous Lloyd’s investors (“Names”) as a result of asbestos claims. While Lloyd’s has successfully sought recovery from its investors, and has instituted its plan for renewal and recovery, a number of Names took their grievances to the Commission. Its investigation found that the British government may have failed to comply with applicable EU directives concerning the regulation of the insurance industry, notably a directive issued in 1973 which requires national regulators to ensure that companies maintain adequate reserves to cover potential liabilities.
EU procedures require notice to the government involved, and a time for considering the response before any actual charges may be filed. The Financial Services Authority took over the regulation of Lloyd’s in 1998, and this may satisfy current requirements, but it may not be sufficient to meet charges that the regulation of Lloyd’s was inadequate in prior years.
Such a result could trigger a rash of lawsuits against the government from investors who lost money in the Lloyd’s market as a result of the inadequate supervision, the FT indicated.
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