FMLC reports on RAO “similar contracts of guarantee”

The Financial Markets Law Committee has published a report looking at the wording in the RAO which extends the meaning of the term “contracts of insurance” also to include arrangements which the FMLC says are “patently not” contracts of insurance. The FMLC is particularly concerned about the part of the definition that brings “fidelity bonds, performance bonds, administration bonds, bail bonds, customs bonds and other similar contracts of guarantee” within scope of a contract of insurance for RAO purposes. The report notes also that there are myriad other issues with the general lack of clarity around what is a contract of insurance.  However, given the limitations of the subject matter of the report, is makes three specific recommendations:

  • the FCA updates PERG to clarify when the definition might apply;
  • the RAO is amended to include a new “activity-based” exclusion for investment businesses; or
  • the RAO is amended to clarify the ways in which a contract of guarantee needs to be similar to the instruments listed in the definition.

The paper picks many holes in the current definition – quite apart from noting that the bonds referred to are neither insurance nor contracts of guarantee, and therefore use of the word “similar” cannot be right.

Emma Radmore