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Lloyd’s of London to tackle misconduct

Associate Tom Herbert comments on Lloyd’s of London’s consultation to tackle misconduct in the market, and what other financial services companies should be mindful of with the proposal of a byelaw to prevent brokers and underwriters from conducting business under the influence of alcohol.

2 minute read

Published 2 October 2024

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Lloyd’s of London (Lloyd’s) is a corporate body governed by the Lloyd’s Act 1971 and is a marketplace within which multiple financial backers, grouped in syndicates, come together to pool and spread risk. These underwriters, or “members”, are a collection of both corporations and private individuals. The Council of Lloyd’s, through its power to make byelaws, has the power to regulate and direct the business of the market. Lloyd’s has enforcement powers (through the Enforcement byelaw) that gives it a menu of potential sanctions where misconduct is found, including fines. In 2022, they handed down a fine to Atrium Underwriters for £1 million due to the organisation’s culture of heavy drinking, initiation games and sexual comments about female colleagues. In its current consultation, Lloyd’s went further and said that it would not tolerate any insurer that was classified as underperforming because of poor culture and stated that if remediation steps were not taken it would consider “taking action to remove that firm’s permission to operate within the Lloyd’s market”. The sanctions are therefore potentially wide-ranging and severe.

However, Lloyd’s has acknowledged that, despite new levels of oversight and conduct, market participants have reportedly become aware that issues (such as bullying) can fall below the threshold for barring firms and individuals and its existing processes for dealing with poor conduct are unclear. In line with this, it has recently published a non-exhaustive list of unacceptable behaviour that includes harassment and bullying and “conducting Lloyd’s business when under the influence of alcohol where it leads to unprofessional behaviour”. As such, Lloyd’s management is now consulting on a new framework for dealing with behaviour that is aimed at ensuring better alignment with firms’ own internal HR and disciplinary processes, supporting firms’ ability to investigate their own employees and to address issues themselves.

The framework will provide more clarity over the types of conduct that Lloyd’s considers unacceptable and to set out when and how Lloyd’s will intervene. This aligns with the employment law position as it is compulsory for organisations in the UK to have both disciplinary and grievance procedures. These will typically set out a non-exhaustive list of behaviour that will be considered misconduct or gross misconduct and therefore deserving of disciplinary action. Lloyd’s will encourage managing agents and syndicates to investigate and resolve issues themselves according to the Culture Principle (a means of acquiring oversight over culture and performance) which can be likened to how managers and supervisors are delegated the responsibility in an organisation in terms of investigating and resolving issues on behalf of the board and/or senior leadership. Moreover, the consultation also proposes that employers will need to manage behaviour ‘outside of work but in the presence of colleagues’, which albeit challenging in some contexts, is something organisations should already be doing as they will be vicariously liable for certain acts committed outside of work (for example, discrimination, ordinary (and sexual) harassment, etc.) unless they can argue that they took “all reasonable steps” to prevent the conduct from happening.

As of 26 October 2024, a new positive duty will be coming into force that will mean employers must take “reasonable steps” to prevent sexual harassment of its employees both inside and outside the workplace. So, it is of the utmost importance for organisations to get a handle on poor behaviour and conduct. In accordance with this position, Lloyd’s has also stated that the byelaws will mirror the rules set by the UK’s Financial Conduct Authority (FCA), particularly, in relation to conduct committed outside the workplace but in the presence of market participants. However, there may be backlash, like the FCA has received in relation to cases regarding the intersection between poor behaviour and whether someone’s poor behaviour is always enough to jeopardise their fitness and propriety to hold a regulated position (or whether it in fact falls short). It therefore remains to be seen how Lloyd’s will reconcile the regulatory obligations with each organisation’s legal and compliance obligations to ensure they function effectively in tandem.

At the heart of this is the overarching point that poor behaviour and conduct should not be tolerated. It is of increasing importance for organisations across all sectors (not just insurance) to get a handle on their business. Employers should start by auditing their business from an employment law and HR perspective. This will include having company policies (such as harassment, alcohol and drugs and events) that are regularly reviewed (and refreshed) and communicated and stored in a place that is easily accessible to employees (such as a company intranet), clear employee support and complaints/investigations channels, training tailored to different roles within the organisation (such as employees, managers and senior leadership) and a comprehensive risk identification/assessment bespoke to the organisation. Of course, any steps that organisations put in place should align with the regulatory position.

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Shorter Reads

Lloyd’s of London to tackle misconduct

Associate Tom Herbert comments on Lloyd’s of London’s consultation to tackle misconduct in the market, and what other financial services companies should be mindful of with the proposal of a byelaw to prevent brokers and underwriters from conducting business under the influence of alcohol.

Published 2 October 2024

Associated sectors / services

  • Employment law for employers

Authors

Lloyd’s of London (Lloyd’s) is a corporate body governed by the Lloyd’s Act 1971 and is a marketplace within which multiple financial backers, grouped in syndicates, come together to pool and spread risk. These underwriters, or “members”, are a collection of both corporations and private individuals. The Council of Lloyd’s, through its power to make byelaws, has the power to regulate and direct the business of the market. Lloyd’s has enforcement powers (through the Enforcement byelaw) that gives it a menu of potential sanctions where misconduct is found, including fines. In 2022, they handed down a fine to Atrium Underwriters for £1 million due to the organisation’s culture of heavy drinking, initiation games and sexual comments about female colleagues. In its current consultation, Lloyd’s went further and said that it would not tolerate any insurer that was classified as underperforming because of poor culture and stated that if remediation steps were not taken it would consider “taking action to remove that firm’s permission to operate within the Lloyd’s market”. The sanctions are therefore potentially wide-ranging and severe.

However, Lloyd’s has acknowledged that, despite new levels of oversight and conduct, market participants have reportedly become aware that issues (such as bullying) can fall below the threshold for barring firms and individuals and its existing processes for dealing with poor conduct are unclear. In line with this, it has recently published a non-exhaustive list of unacceptable behaviour that includes harassment and bullying and “conducting Lloyd’s business when under the influence of alcohol where it leads to unprofessional behaviour”. As such, Lloyd’s management is now consulting on a new framework for dealing with behaviour that is aimed at ensuring better alignment with firms’ own internal HR and disciplinary processes, supporting firms’ ability to investigate their own employees and to address issues themselves.

The framework will provide more clarity over the types of conduct that Lloyd’s considers unacceptable and to set out when and how Lloyd’s will intervene. This aligns with the employment law position as it is compulsory for organisations in the UK to have both disciplinary and grievance procedures. These will typically set out a non-exhaustive list of behaviour that will be considered misconduct or gross misconduct and therefore deserving of disciplinary action. Lloyd’s will encourage managing agents and syndicates to investigate and resolve issues themselves according to the Culture Principle (a means of acquiring oversight over culture and performance) which can be likened to how managers and supervisors are delegated the responsibility in an organisation in terms of investigating and resolving issues on behalf of the board and/or senior leadership. Moreover, the consultation also proposes that employers will need to manage behaviour ‘outside of work but in the presence of colleagues’, which albeit challenging in some contexts, is something organisations should already be doing as they will be vicariously liable for certain acts committed outside of work (for example, discrimination, ordinary (and sexual) harassment, etc.) unless they can argue that they took “all reasonable steps” to prevent the conduct from happening.

As of 26 October 2024, a new positive duty will be coming into force that will mean employers must take “reasonable steps” to prevent sexual harassment of its employees both inside and outside the workplace. So, it is of the utmost importance for organisations to get a handle on poor behaviour and conduct. In accordance with this position, Lloyd’s has also stated that the byelaws will mirror the rules set by the UK’s Financial Conduct Authority (FCA), particularly, in relation to conduct committed outside the workplace but in the presence of market participants. However, there may be backlash, like the FCA has received in relation to cases regarding the intersection between poor behaviour and whether someone’s poor behaviour is always enough to jeopardise their fitness and propriety to hold a regulated position (or whether it in fact falls short). It therefore remains to be seen how Lloyd’s will reconcile the regulatory obligations with each organisation’s legal and compliance obligations to ensure they function effectively in tandem.

At the heart of this is the overarching point that poor behaviour and conduct should not be tolerated. It is of increasing importance for organisations across all sectors (not just insurance) to get a handle on their business. Employers should start by auditing their business from an employment law and HR perspective. This will include having company policies (such as harassment, alcohol and drugs and events) that are regularly reviewed (and refreshed) and communicated and stored in a place that is easily accessible to employees (such as a company intranet), clear employee support and complaints/investigations channels, training tailored to different roles within the organisation (such as employees, managers and senior leadership) and a comprehensive risk identification/assessment bespoke to the organisation. Of course, any steps that organisations put in place should align with the regulatory position.

Associated sectors / services

  • Employment law for employers

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