By Trevor ParkerBundy, Insurance Director, Artex Risk Solutions (Gibraltar)

In March the Gibraltar Financial Services Commission (GFSC) held their annual event to publicise their intended focus for the coming 12 months. This was the best attended event yet which demonstrates the level of interest in regulation within the Gibraltar market. It is therefore a good time to reflect on how regulation is developing, not just in Gibraltar but in the wider insurance markets and particularly in the UK.

The event highlighted a number of areas on which the GFSC will be concentrating in 2024 as a result of the ongoing work to ensure that Gibraltar’s regulation is in line with other well- regulated jurisdictions, align regulatory outcomes with the PRA/FCA regime in the UK, and ultimately ensure that the aims of the Gibraltar Authorisation Regime (GAR) to be based on aligned legislation and supervisory practice, as well as high standards of financial regulation will come into force.

Continuing focus on consumers

The emphasis was on a number of themes which in many ways are interlinked. However, what has become clear is that Gibraltar is closely following the trajectory of the FCA which has for several years concentrated on the consumer:

a) Consumer Duty regulation came fully into effect in 2023 requiring insurance firms to put their customers’ needs first throughout the entire lifecycle of a product, from design to after-sales service;

b) Fair Value Focus requiring firms to keep a close eye on whether insurance products offer good value for customers;

c) Transparency and Information monitoring regulating how insurers provide information to customers including rules around pre-sale disclosures, policy summaries, and how renewals are communicated.

The GFSC rightly made consumer duty an area of focus in 2023 – protection of policyholders should be important to all insurers and intermediaries in a well-run market. The regulator has now announced that their Conduct of Business team will have oversight of prudential firms in conduct risk, fair value, and consumer duty.

The Gibraltar regime is advantageous over the UK in that it has a single regulator under one roof bringing together the processes of both the FCA and PRA who operate independently in the UK.

Having brought in consumer duty regulation itself and conducted thematic reviews the GFSC has now enhanced its thinking in the area of conduct, requiring effective and evidenced oversight of outsourced providers, expectation that conduct risk is reflected in firms risk appetite and tolerances with all of this to be backed up by relevant MI and monitoring of that MI with evidence of review and challenge. This will ensure that not only is Gibraltar aligned with the UK but can show that in so doing it is comparable with the best regulated jurisdictions around the world

Moving forward – focus on operations

The GFSC is also going further as it looks beyond the consumer and is now focusing in addition on how firms are operating, looking at operational resilience, effective governance of outsourced service providers and group regulation. In doing so Gibraltar is moving into alignment with current UK thinking and this is another landmark in the move towards GAR.

a) With regard to operational resilience, critical business services should already be being identified and impact tolerances set by July 2024 with mapping and scenario testing also having commenced as part of this programme. Building resilience to stay within tolerances for identified vulnerabilities should then be in place by July 2026.

b) The controls over outsourced service providers are an essential part of operational resilience and this includes pricing, pricing changes, underwriting, claims and IT services. Robust agreements need to be in place with outsourced providers, including within groups, for governance of systems and control of data, and if needed, recovery of data.

c) Having effective regulation over the firms in Gibraltar, and their service providers in the UK, and ongoing efforts to have suitable structures in place to enable effective supervision of insurance groups, will ensure Gibraltar retains its place amongst the trusted jurisdictions around the world to carry out insurance business.

Conclusion

The move towards alignment for GAR presents challenges to the Gibraltar insurance community. The GFSC has emphasised that alignment means an “alignment of outcomes”, not an exercise in copying UK regulation. This means that the regulator can adapt to the nuances of a small and dynamic domicile whilst still ensuring a robust regulatory environment giving confidence to customers and investors alike.

Nevertheless, the areas of focus set out in this event present considerable challenges to insurers. Insurance Managers in Gibraltar, including Artex, are in continuous dialogue with the GFSC and help clients navigate and comply with the requirements, and will look to help frame a fair and balanced approach.