The UK Consumer Duty and what it will mean for the Gibraltar insurance industry

David Coupe, one of the best insurance lawyers in the UK, and formerly of EC3 Legal, now runs InsureLaw Gibraltar, which offers straightforward advices for regulated insurance entities.  Here he reports on the latest from the UK FCA

In December, the UK FCA published its second consultation paper relating to its “Consumer Duty” including new draft rules. It is subject to potential change. However, the chances of the Consumer Duty not becoming reality, or significant changes being made, are slim.


What is the proposed duty?

Put simply, each firm must deliver good consumer outcomes for retail customers. This is not just their own direct customers, but also customers that interact with all firms in the insurer’s distribution chain. Therefore, insurers need to consider the MGAs and brokers with which they deal too. It also creates a duty of good faith to retail customers by adopting a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers. It must also act to avoid foreseeable harm by, for instance, ensuring that claims are dealt with properly. The duty isn’t just aimed at point-of-sale activities – it applies throughout the product lifespan.

Obligations relating to the design, manufacture and distribution of insurance policies have also been enhanced, as have ones to assess value.

The duty also applies to closed products that are no longer offered. It does not create a fiduciary relationship where one doesn’t otherwise exist, nor require a firm to provide advice where it would not otherwise have done so.

Why does it matter, and with what effect?

It applies to all UK consumers including SME enterprises. Since Gibraltar insurers provide insurance to millions of such consumers, it will apply to them. The duty is intended to be effective from [31st May] 2023. The final rules will not be announced until [30th June] 2022. Thus, there will be time pressures to effect the changes at more significant cost. Planning will be key.

More importantly, the personal obligations placed on all directors will increase. The duties will also link into the Regulated Individuals’ regime. If directors do not implement fully all the required changes, or fail to ensure compliance with the new duty, they will be deemed not to be fit and proper. Immediate consultation with D&O insurers is clearly going to be high on the agenda also!

Gibraltar Authorisation Regime

A new UK legislative framework – the Gibraltar Authorisation Regime (GAR) – will be established under the UK Financial Services Act 2021. This allows market access for Gibraltar-based insurers writing business in the UK. The FCA expect that the GFSC’s supervision under the GAR would be aligned with its own.

Until the GAR is in enacted, and the rules aligned, the FCA propose to apply the Consumer Duty to Gibraltar firms conducting regulated business in the UK, whether from a UK establishment, or on a services basis. This means the FCA overseeing the initial introduction of the rules. This oversight is to protect UK consumers and a level playing field for firms. Once the GAR rules are aligned, the FCA is intending that the GFSC supervise firms’ compliance with the Consumer Duty (and all other relevant UK conduct obligations).

There are clearly questions as to how this will occur in practice. How will the GFSC monitor compliance? How will it do so if all compliance is conducted by the insurer in the UK? How will it enforce this? How is consistency of approach between the FCA and the GFSC to be ensured? The latter question also raises wider issues post the GAR coming into force.

Why is the Duty needed?

UK regulated businesses would argue that it is not needed, and that the existing regulatory framework is adequate. The FCA disagree and intend to bring about a fairer, consumer-focused and level playing field where:

  • firms consistently place consumers’ interests at the centre of their businesses, and extending their focus beyond ensuring narrow compliance with specific rules to focus on delivering good outcomes for consumers,
  • competition is effective in driving market-wide benefits, with firms competing to attract and retain customers based on high standards and innovate in pursuit of good consumer outcomes; and
  • consumers receive products and services which are fit for purpose, provide fair value, and which they understand how to use and are supported in doing so.

No one would disagree with these. However, the FCA’s intended reliance on proactive enforcement will leave many wondering how this helps in practice. If the GFSC adopt such an approach, it is equally unclear how the impact will be felt by Gibraltar insurers.


The Consumer Duty will be a cornerstone principle of FCA and then GFSC supervision. How the GFSC will communicate its expectations is unknown, but these will need to be clear and frequent. Implementation by the FCA (and presumably the GFSC) is to be at three levels:

The Authorisation Process
Firms should expect to demonstrate they can meet the expectations of the Consumer Duty, how they would monitor consumer outcomes, and the processes they have in place to ensure they amend and adapt their policies and procedures if they identify they are not delivering good consumer outcomes.

At the Supervisory Level
The Consumer Duty will become a central part of supervision and be embedded in the assessment criteria. The regulators can be expected to challenge firms and intervene robustly to prevent harm. Firms will need to demonstrate how their business model, actions and culture are delivering good consumer outcomes. The regulators will use data, technology and analytics to identify and tackle poor consumer outcomes.

At the Enforcement Level
Protecting consumers is at the heart of enforcement work, where the regulators would ensure that there are real, meaningful consequences for firms and individuals who cause actual or potential harm to consumers. Where the regulators identify serious misconduct by firms, they will use the full range of powers to tackle this, including investigating, and using deterrent and remedial powers. This could include issuing fines against firms and securing redress for consumers who have suffered harm through a firm’s breach of the Consumer Duty.


Firms will incur considerable costs to ensure compliance. They will need to perform a gap analysis to assess the changes needed to comply with the new requirements. Firms will need to monitor on an ongoing basis, and review at least annually, whether they are meeting their obligations. There will be training costs involved to ensure that staff are clear what is needed. The FCA’s cost -benefit assessment estimates significant initial costs, with perhaps lesser on-going costs.


The duty will affect all aspects of consumer business, including all the business insurers are doing now in the UK. The jury is out as to what the benefit will be to the consumer, but one can expect significant change by all involved with insurance. Prepare now or be in for a shock!