A preliminary draft of a report prepared for the European Commission apparently indicates that U.K. regulators failed to adhere to European Community regulations in auditing and oversight of Lloyd’s of London.
According to a report from Reuters News Agency, which obtained a preliminary draft of the findings, Roy Perry, a Member of the European Parliament, who prepared the it, found that U.K. regulators failed to apply European standards to Lloyd’s audits prior to 1982, and incorrectly applied them afterwards.
The EU promulgated an insurance directive in 1973 that requires national regulators to adhere to certain standards inn order to assure that insurance companies maintain adequate reserves sufficient to cover potential liabilities. When the U.K. joined the European Union it agreed to be bound by its laws, directives, conventions and regulations.
In this case some 200 Lloyd’s “Names,” who lost a great deal of money in the 1980’s and early ’90’s when Lloyd’s ran up huge losses due to a series of disasters and the huge growth in asbestos and environmental claims, charged that inadequate supervision by the British government resulted in Lloyd’s having insufficient reserves to cover the claims.
As a result the Names charge that they were required to contribute additional funds, bankrupting many of them. Suits in the U.K. courts by the Names, notably the Jaffray case, seeking to recover those amounts on the basis of fraud and misrepresentation, have been largely unsuccessful. The Names therefore decided to press their contentions with the EU directly against the British government.
A European Parliament committee will discuss Perry’s preliminary findings next week in Brussels, and will determine what action, if any, should be taken. The Names are hoping that it will adopt the findings, thus opening the way to support their claims that the U.K. government should be liable for billions of pounds in compensation for failing to regulate Lloyd’s properly.
Lloyd’s, which set up Equitas as a runoff vehicle to settle pre-1993 claims, and has reached a settlement on the issue with most Names, stressed that its auditing procedures had been in conformity with applicable rules.
Although U.K. officials have given no direct response to the report, they’ve indicated in the past that EU rules governing the regulation of the insurance industry have been complied with.
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