N2 - Are you prepared?

At midnight on 30th November (N2) the Lloyd's market will cease to be self-regulated and for the first time the market, including Managing and Members' Agents, will be subject to the regulation of an outside agency, namely the Financial Services Authority ("FSA").

The biggest change is that there will be a separate regulatory system, established by the FSA, specifically applicable to individuals including directors and other senior management such as Compliance Officers. This system consists of the Statements of Principle and Code of Practice for Approved Persons and applies to all entities regulated by the FSA, which will include Managing and Members' Agents.

Senior management's responsibility is closely linked to the setting up of adequate systems and controls. The FSA has set out its own requirements in the document called "Senior Management Arrangements, Systems and Controls" (SYSC). The purpose behind SYSC is specifically stated as being "to encourage firms, directors and senior managers to take appropriate practical responsibility for their firm's arrangements on matters likely to be of interest to the FSA..." and to "encourage firms to vest responsibility for effective and responsible organisation in specific directors and senior managers". In order to comply with SYSC, firms will have to set out a clear management structure showing who is responsible for which areas and how reporting lines will function.

As you will be aware Compliance is a vital function under SYSC. It is explicitly stated that the firm must "establish and maintain effective systems and controls for compliance with applicable requirements and standards...".

CMS Cameron McKenna have prepared a document entitled "N2 Preparedness - Practical steps for the Lloyd's market" detailing the steps which need to be taken in order to be ready for 30th November. To access the document, please click on the link below:

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For further information, please contact John Newbegin at [email protected] or on +44 (0)20 7367 2703.

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