EU threatens legal action over Lloyd's

The European Commission today stepped up threats of legal action against the UK over the handling of the Lloyd’s insurance market.

The British government is accused of failing to comply with EU insurance rules – which the Commission says could have prevented the scandal in which hundreds of Lloyd’s “names” lost fortunes.

Under a 1973 European insurance Directive, national regulators must supervise insurers to be certain they have adequate reserves to cover potential liabilities.

But the rules were only applied in the UK in 1982, and a European Parliament inquiry is investigating whether they were correctly applied even then.

The Commission issued a formal warning to the government more than a year ago that it could face legal action for failing to implement the rules.

At about the same time, the new Financial Services and Markets Act (FSMA) 2000 came into force, establishing tighter controls on overseeing the running of Lloyd’s.

Today’s second warning from Brussels signals that the Commission is still not satisfied with the supervision arrangements: “The commission had decided to continue its formal infringement procedures into the regulation and supervision of the Lloyd’s insurance market following the changes introduced by the UK FSMA 2000,” said a statement.

“The Commission recognises the improvements achieved through the FSMA 2000 regime but still has some remaining concerns over compliance with the Directive.”