On 1 March 2012, additional Lloyd's requirements came into effect relating to distribution costs, broker remuneration and additional charges. The guidance, published in Market Bulletin Y4567, is aimed at Lloyd's Managing Agents and will affect the brokers they deal with. However it will be of interest to the insurance market in general.
Lloyd's has previously provided guidance to the market on the issue of additional broker charges. In light of the Bribery Act 2010, Lloyd's now states that it expects Managing Agents "to adopt a very cautious and rigorous approach to compliance". Please see the CMS Cameron McKenna Anti Corruption Zone for further information on the Bribery Act 2010.
The concern is that the payment of additional fees, charges or commissions may influence a broker to act otherwise than in the best interests of its client. The focus is on the underlying commercial reality of any given arrangement and Lloyd's states that the way in which any additional payments are represented or described is irrelevant.
Lloyd's confirms that ordinary brokerage that falls within the amount typically paid for the type of business and which has been fully disclosed to the client, is unaffected by this guidance.
Reporting
As well as complying with the guidance, Lloyd's requires that each managing agent must report to the Performance Management Directorate all new arrangements with a broker that involve additional payments before they are entered into. Managing Agents must account for all amounts booked in each quarter under any new or existing arrangements by means of forms appended to Market Bulletin Y4392.
From 1 March 2012 there is a requirement that these reports should include all additional payments (other than ordinary brokerage) however described and whether or not the additional payment is provided for on the slip or on a line slip (previously amounts disclosed on slips did not have to be reported). Reports should also include details of additional payment arrangements which have been entered into by Managing Agents at group level but where some or all of the payment is to be recharged to the syndicate.
Comment
The Lloyd's Bulletin is one more step in a much wider drive to prevent bribery and corruption.
Insurance market participants, whether Managing Agents or otherwise, need to be alert to the risks to their business presented by bribery. For regulated firms the issue is not confined to whether acts of bribery have actually taken place. For UK regulated firms there are wider issues of the FSA's expectations that firms will have organised their businesses to reduce their vulnerability to financial crime. This includes scrutinising all payment arrangements in the underwriting chain. Where this has not taken place, firms are at risk of sanction.
Thoughts of the FSA on this topic, relevant to the wider insurance market as well as brokers, can be found here: "Anti-bribery and corruption in commercial insurance broking".
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 05/03/2012.
