The Society must establish and maintain systems and controls to enable it appropriately to address the risks to which the Lloyd's market is exposed.
As well as the risks that are common to other firms, there are significant risks in the Lloyd's market arising out of its structure and the interrelationships between the entities involved. The risks include aggregations of risk in the market. The Society should ensure that the systems and controls required by LLD 17.4.1 R enable it to identify, monitor and manage those risks.
The systems and controls in LLD 17.4.1 R must include systems and controls to enable the Society to ensure that any assumptions made in calculating a member's capital resources or in determining the individual capital assessment for each member are regularly reviewed and that appropriate action is taken if any assumption is no longer valid.
The Society must take all reasonable steps, including establishing and maintaining adequate systems and controls to enable it:
The Society must take reasonable steps to ensure that systems and controls established and maintained by managing agents are adequate to ensure that risks to which the insurance business carried on through each syndicate is exposed do not have a detrimental effect on funds at Lloyd's or central assets.
the Society holds and manages funds at Lloyd's and central assets which must be held to support balancing amounts. The Society is required to manage the risks that affect funds at Lloyd's and central assets directly, once the effects of any aggregation and diversification have been taken into account;
managing agents hold and manage some of the financial resources in respect of the insurance business carried on through each syndicate that they manage. Managing agents are required to manage all risks affecting a syndicate except for the risk that funds at Lloyd's and central assets are not available to support the balancing amount.
Should the Society intend to exercise any power it may have to prescribe a course of action for a managing agent which the managing agent might reasonably consider to be inconsistent with the interests of any member whose insurance business it manages, the Society should:
Many entities operating within the Lloyd's market are part of a corporate group, including the Society, certain managing agents and members. Those entities are subject to group risk arising from their own corporate group and, depending on the relationships within their own group, may be subject to FSA systems and controls requirements or group risk requirements. The rules and guidance in this section are intended to ensure that sufficient systems and controls are in place to protect policyholders and potential policyholders from such risks. The Society is also subject to the risk of wider conflicts of interest or the appearance of conflicts of interest in carrying out the Society's regulatory functions. LLD 17.4.13R (1) requires the Society to monitor and manage those risks.
transactions which may give rise to a conflict of interest, such as those to which the counterparties are:
the provision of capital;
the provision of reinsurance; or
the provision of other services.
The Society must establish and maintain effective arrangements to monitor and manage risk arising from:
The arrangements in LLD 17.4.13 R must enable the Society to identify any significant overstatement of financial resources resulting from any transaction falling within LLD 17.4.13R (2) to LLD 17.4.13R (4), including as a result of:
If the Society identifies a significant overstatement of the kind referred to in LLD 17.4.14 R, it must ensure that an appropriate adjustment is made, including if appropriate by a deduction from or reduction in the value attributed to: