GFSC Annual Report 2023/24 – Focus on Insurance
The Gibraltar Financial Services Commission (GFSC) has now published its 2023/2024 Annual Report. As expected, the Report provides a detailed overview of the regulatory, supervisory, policy and other activities conducted by the GFSC during the year. It is also noted that this year’s Report provides an update on the GFSC’s 2023-2026 Strategic Plan, summarising the progress which the organisation has undertaken in support of its key strategic goals.
From an insurance sector perspective, the following takeaways may be of particular interest:
Insurance Sector Statistics
During the reporting period, two insurance company Part 7 Permissions have been processed, together with five Section 83A Material Change Consent Applications in respect of insurers (the most of any sector). Additionally, there have been 148 Regulated Individuals approved by the GFSC in respect of Gibraltar insurance companies, again reflecting the size of the local insurance industry.
It is also notable that there has been a total of sixteen Change in Control approvals issued by the GFSC, half of which relate to insurers (6) and insurance intermediaries (2). As these statistics illustrate, the past 12 months has seen a significant amount of M&A deal activity as far as the Gibraltar/UK insurance sector is concerned (and most industry commentators expect this trend to increase in the short term).
Regulatory Focus Areas
During the reporting period, the GFSC has collaborated with firms to pinpoint key supervisory focus areas and identified priority issues that presented the greatest risk to its regulatory goals. This work has also built upon the aforementioned strategic goals set out in the GFSC’s 2023-2026 Strategic Plan. The relevant focus areas have been:
a) Regulated Individuals and Corporate Governance: Evaluating the capacity, competence, and role of regulated individuals, as well as how conflicts of interest are being managed.
b) Group Supervision: Continuing close collaboration with firms subject to Group Supervision, as well as those transitioning to this framework.
c) Capital Planning: Assessing the quality of business plan evaluations, including potential optimism bias, the use of stress testing, and the consideration of recovery strategies.
The GFSC’s Prudential Team has also monitored significant growth in premium rates within specific sectors of the insurance industry, the impact of inflation, as well as changes in market activity to better understand how these factors might affect firms’ operations, risk profiles and financial positions.
In addition, as part of the regulatory alignment process pertaining to the Gibraltar Authorisation Regime (GAR), operational resilience requirements, effective from July 2024, were also introduced in Gibraltar. Going forward, the review of firms’ compliance with these requirements, along with a thematic review of underwriting, pricing, claims, and related data arrangements, will be prioritised by the GFSC.
Consumer Duty
As has been a recurrent theme in recent years, a great deal of attention has also been drawn towards updating Gibraltar’s legislative and regulatory framework for compliance with ‘consumer duty’ rules. Much of the insurance sector will already be largely compliant with such rules, given these have been in force in the UK and Gibraltar-based firms conducting business in the UK have had to comply with these requirements since then.
However, following a consultation process, HM Government of Gibraltar confirmed that Gibraltar would proceed to implement its own Consumer Duty legislation in two stages. The Core Principles and Consumer Duty Regulations 2024 and Technical Standards mirror the scope of the UK Financial Conduct Authority’s regime and, initially, apply to firms that provide products or services regulated in the UK or to any UK retail client.
Most importantly however for businesses dealing primarily or exclusively with Gibraltar customers/consumers, at a later date, Gibraltar’s Consumer Duty regime will be widened to capture the provision by all Gibraltar financial services providers of products and services to any retail customers, regardless of their location. Such firms should therefore ensure they make the necessary preparations to adapt their policies and procedures in anticipation of these rules coming into force.
Policy Developments
From a wider policy perspective, the GFSC has continued its participation in meetings with HM Government of Gibraltar, HM Treasury and UK regulators, focusing on various aspects required to implement the GAR. The GFSC’s Policy team led the completion of HM Treasury first GAR assessment, which addressed cross-sectoral legislative content. Additionally, pre-assessment work has been completed on the first four sectors to be assessed by HM Treasury, notably insurance, insurance distribution, investment services, and AIFM sectors.
Simultaneously, the GFSC has collaborated with HM Government of Gibraltar on several legislative amendments aimed at enhancing regulatory alignment with the UK. These have included changes to the formula for calculating the Solvency II risk margin for insurance and reinsurance obligations, as well as the above-mentioned implementation of a UK-equivalent Operational Resilience regime and UK-equivalent Consumer Duty regime.
A substantial number of GFSC Guidance Notes designed to align with equivalent guidance of the UK regulators has also been published during the reporting period. These have included Guidance Notes on Operational Resilience, Insurance Group Supervision, Outsourcing and Third-Party Risk Management for Banks and Insurers, and Liquidity Risk Management for Insurers.
A Financial Services Amendment Bill, implementing significant changes to the Financial Services Act 2019 has also been published. The Bill aims to further strengthen Gibraltar’s regulatory framework and increase its alignment with the UK. It will also introduce necessary provisions to make the GAR operable, mirroring equivalent content in UK legislation.
The Annual Report also noted that work continues between the GFSC and HM Government of Gibraltar on developing a dual regulatory regime for captive insurers and reinsurers.
For further information, please contact Partner, Christian Caetano.
