(This note is not part of the Regulations)
These Regulations implement Directive 2003/51/EC of the European Parliament and of the Council amending Directives 78/660/EC, 83/349/EEC, 86/635/EEC and 91/674/EEC as regards modernising the annual and consolidated accounts of certain types of companies, banks, other financial institutions and insurance undertakings to bring the preparation of those accounts more into line with international accounting standards (OJ L 178, 17/07/2003, p.16 – 22) (“the Modernisation Directive”), in relation to Lloyd’s of London.
The Modernisation Directive amends Directive 91/674/EEC (“the Insurance Accounts Directive”) by deleting the annex to that directive which contained special provisions relating to the accounts prepared by syndicates in the Lloyd’s of London market and by the Council of Lloyd’s for the market as a whole. The effect of that amendment and the amendment to article 4 of the Insurance Accounts Directive is that syndicates at Lloyd’s are now required to prepare annual accounts using the same basic format for their balance sheet, profit and loss account and the notes to their accounts as other insurance undertakings. The majority of the provisions in the Insurance Accounts Directive now apply to syndicate accounts whereas previously they did not. The accounts which must be prepared for the market as a whole, are not required to be consolidated accounts but are instead to be aggregated accounts prepared by cumulating all syndicate accounts.
Regulation 3 requires managing agents of syndicates to prepare annual accounts for each syndicate for which they are responsible on 31st December for the preceding financial year. The accounts that they are required to prepare must comply with the provisions in the Companies Act 1985 which govern the accounts of insurance companies, which are specified in that regulation. The provisions which are specified in the Companies Act are in Part 7 of the Act and Schedule 9A to the Act. Regulation 3 also requires managing agents to ensure the preparation of a directors' report and an auditors' report. Some of the provisions of the Companies Act with which the syndicate annual accounts and reports must comply, are modified in their application to syndicates by the Schedule to these Regulations.
Regulation 4 requires the preparation of a separate set of accounts which are to be separately audited. The accounts required by regulation 4 are to be prepared on an underwriting year basis in respect of any underwriting year which is being closed by way of reinsurance to close. Such underwriting year accounts must give a true and fair view of the result of the closing year of account at closure. There are two exceptions to the requirement to produce underwriting year accounts set out in regulation 4.
Regulation 5 requires managing agents of a syndicate to send copies of the accounts prepared under regulations 3 and 4 to the members of the syndicate, the Council of Lloyd’s and the Financial Services Authority. Regulation 6 requires the Council of Lloyd’s to make copies of syndicate accounts that it receives, available to the public on reasonable notice.
Regulation 7 makes it a summary offence for managing agents to fail to comply with regulations 3, 4 and 5, punishable by a fine not exceeding level 5 on the standard scale. By applying section 731 of the Companies Act 1985 to these new offences, the time limit for laying an information relating to these offences is extended.
Regulation 8 requires the Council of Lloyd’s to prepare aggregate accounts in respect of each financial year. These accounts are to be an aggregation of all the annual syndicate accounts prepared under regulation 3 for that year and are to comply with the provisions of Schedule 9A of the Companies Act 1985 apart from the provisions specified in paragraph (4).
Regulation 10 requires the Council of Lloyd’s to prepare an annual report containing a fair review of the business carried on by the members of Lloyd’s and an assessment of the risks facing the Lloyd’s market. Regulation 12 requires the Council of Lloyd’s to obtain an auditors' report on the aggregate accounts.
Regulations 13 and 14 deal with signature of the auditors' report and the duties of the auditors. Regulation 15 requires the Council of Lloyd’s to deliver the aggregate accounts and its annual report to the Financial Services Authority. Those accounts and report must also be available for public inspection on reasonable notice.
Regulation 16 imposes certain statutory functions on the Financial Services Authority in relation to overseeing the preparation and delivery of accounts by Lloyd’s syndicates and the Council of Lloyd's.
Regulation 17 makes transitional provisions and regulation 18 revokes certain provisions in the Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 1993 (S.I. 3245/1993) which had previously imposed requirements on Lloyd’s to prepare and publish accounts.
The Schedule to the Regulations modifies several of the provisions of the Companies Act 1985 which are applied to syndicate accounts in order to make allowance for the differences between syndicates and insurance companies. Paragraph 12 of the Schedule imposes a new requirement in relation to the notes to syndicate accounts. This requires syndicate annual accounts to include a description in general terms of the requirements to hold funds at Lloyd's, which members are subject to.
A regulatory impact assessment has been prepared in relation to these Regulations as has a transposition note showing how the main provisions of the Directive, as it applies to Lloyd's, are being transposed into UK law. A copy of both documents can be obtained from the Capital Markets and Governance Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ. Both documents are also available on the Treasury website (www.hm-treasury.gov.uk) and copies have been placed in the library of both Houses of Parliament.