By Erika Pozo, Director, Kroll (Gibraltar) Limited

In an evolving regulatory landscape, insurance firms must be prepared not only for growth and resilience… but also for a ‘final chapter’ of a book of business, ‘The Solvent Exit’.

A solvent exit in the industry doesn’t always mean a full exit from the market. It can involve a structured withdrawal from a particular line of business, undertaken to release trapped capital and redeploy resources into more profitable or strategic areas. In either case, whether leaving the market entirely or streamlining operations, the regulator now expects insurers to demonstrate that the process can be carried out in an orderly, well governed, and policyholder focused manner.

Thanks to the Gibraltar Financial Services Commission’s (GFSC) a new Guidance Note on Solvent Exit Planning for Insurers, published on 13 June 2025, outlines the expectations for insurers to plan and execute an orderly wind-down while remaining financially solvent.

From the PRA to the Rock

Solvent exit planning has its roots in UK regulatory policy. Back in 2021, the Prudential Regulation Authority (PRA) introduced requirements for solvent exit planning, with its final policy (PS20/24, SS11/24) being issued on 18 December 2024. The rationale was straightforward: if an insurer decides to leave the market while solvent, it should be able to do so orderly, responsibly, and without destabilising policyholder protection mechanisms. The PRA’s framework placed exit risk on the same footing as entry and operational risks.

Given Gibraltar’s close regulatory ties to the UK through the Gibraltar Authorisation Regime (GAR), it was only a matter of time before the GFSC followed suit. The June 2025 guidance now makes solvent exit planning a standard expectation for all Gibraltar insurers.

Core requirements – The Solvent Exit Analysis

The GFSC’s guidance lays out a structured, technical approach. At its heart, it requires all insurers to build credible, proportionate exit strategies. In meeting the expectations within the Guidance Note, firms must produce a Solvent Exit Analysis (SEA) as part of its BAU activities, which outlines and sets out a firm’s run-off / exit options, regardless of how unlikely or distant the prospect of an exit may seem.

The SEA is not a box-ticking exercise. Every insurer authorised in Gibraltar must maintain one, with the level of detail tailored to the firm’s size and complexity. It must be refreshed at least every three years, or sooner if the risk profile changes. While it can be integrated into existing governance tools such as the Own Risk Solvency Assessment (ORSA), the GFSC is clear that it must stand up as a practical roadmap for an orderly exit.

Insurers are expected to map out credible exit routes, from policy run-off to portfolio transfer, restructuring or sale, and must spell out the actions, resources, and timelines needed. Each analysis must also identify indicators and trigger points that signal when it is time to act, helping firms avoid leaving it too late.

Potential barriers, whether market-wide or firm-specific, must be considered in detail. These range from gaps in policyholder data and operational dependencies to external risks such as market volatility or stakeholder reaction. Resource planning is critical: firms must not only demonstrate they have sufficient capital and liquidity to execute an exit but also allow for added costs such as redundancy payments, advisory fees, or asset write-downs.

Clear governance and accountability are nonnegotiable. A senior regulated individual must oversee the SEA, supported by transparent decision making and robust assurance.

For Gibraltar, this move signals a proactive stance: embedding exit preparedness into day to day business to safeguard policyholders and maintain confidence in its insurance market.

SEEP: Turning Exit Planning into Execution

Unlike the SEA, which is a standing requirement, the Solvent Exit Execution Plan (SEEP) is only triggered when an insurer’s exit from the market becomes a reasonable prospect.

The SEEP translates theory into action. It is designed to show, in real time, how an insurer will implement an orderly and solvent exit, whether through run-off, transfer, sale, or restructuring. Once triggered, the SEEP must be delivered to the GFSC within a specified period and updated as circumstances evolve.

Key elements of the SEEP include a detailed timeline of actions, allocation of responsibilities, resource mobilisation, and communication strategies to manage policyholders, staff, creditors, and counterparties. The SEEP also addresses the barriers identified in the SEA, showing how they will be overcome in practice. With a regulated individual accountable for execution, ensuring governance remains clear at any critical juncture.

For Gibraltar insurers, the SEEP requirement underscores the regulatory message: planning alone is not enough. Firms must be ready to act decisively to protect policyholders and market stability if an exit becomes inevitable.

What matters?

For Gibraltar as a jurisdiction, solvent exit planning strengthens alignment with the UK PRA and reinforces the credibility of GAR. Boards are now expected to take ownership of exit strategies, pushing exit planning firmly into the boardroom agenda rather than leaving it as an operational afterthought. The message is clear, exit planning is now a core regulatory expectation, designed to protect policyholders, preserve market confidence and prevent disorderly failures in Gibraltar’s insurance sector.

The post Shutting the door safely, a regulatory push for exit plans appeared first on Gibraltar International Magazine.

By Alicia Morillas Salazar, Head of Risk & Compliance, Robus Risk Services (Gibraltar) Limited An SRS Company

General Insurance intermediaries have played an important role in the Gibraltar insurance industry, despite never being in the centre of the regulatory radar as they were generally seen as lower risk compared to other types of regulated firms in the insurance sector. More recently however, this has changed with the Government & GFSC giving them some regulatory attention, which has been reflected in the following strategic and supportive regulatory changes which, I personally pursued when I joined the GFSC as the Head of Insurance Conduct, in charge of the Intermediaries Prudential and Conduct supervision in 2022 (prior to joining Robus):

Capital Requirements

The current requirement inherited from the European IDD is to hold a capital of €19.510 or 4% of annual premiums received + (in addition) 3 months’ worth of operating expenses. This requirement creates two challenges: 1. The “Premiums received” figure is not contained in the intermediaries’ Audited Financial Statements, so there is a regulatory requirement based on a “non-regulated” financial figure.2. “Operating expenses” include variable costs and costs linked to sales, such as marketing, medical screening fees, credit card processing costs, etc, which won’t be incurred in a wind-down process, and which were only permitted to deduct when the auditors separately disclosed those. So it was a variable requirement depending on the auditors accuracy. For point 1 the proposed regulatory change is to hold capital based on the Intermediaries turnover and not on Premiums received (GWP), because the new financial capacity requirements will be the higher of £10,000/£5,000 or 5%/2.5% of its annual income, where the intermediary holds/does not hold customer money. For point 2 the proposed change is to eliminate the expenditure buffer, avoiding subjectivity on the calculation.

Consumer Duty and Product Governance

Most Gibraltar Intermediaries passport services into the UK, so the GFSC has made them aware of the FCA Consumer Duty rules since 2022. The equivalent Gibraltar Consumer Duty was published on 9 May 2024 under the Financial Services (Core Principles and Consumer Duty) Regulations 2024m (the CPCD) basically a transcription of the FCA Consumer Duty applicable to all financial firms with UK retail customers. On the same day, the Financial Services (Insurance Product Oversight and Governance) (Technical Standards) Regulations 2024 were published, a final transposition of the European IDD into the Gibraltar Regulatory Framework. This Policy supplemented Regulation 18 of the FS (Insurance Distribution) Regulations 2020. The GFSC will soon publish guidance notes on both regulations, but below we have summarised the key rules for General Insurance Intermediaries to be aware of:

• Clear definition of retail customers under the Duty scope.• Only the firms with material influence on customers’ outcomes are subject to the rule. For example, firms providing factual information or IT systems are not materially influencing outcomes.

• Principal firms are responsible for the actions of their appointed representatives.

• Clear definition of co/manufacturers. Co-manufacturers must have a written agreement (in addition or contained in the TOBA) to allocate responsibilities on the Consumer Duty, the product approval process, and the distribution of product information.

• Clear attribution of responsibilities across the distribution chain: in general firms are responsible only for their own activities and do not oversee the actions of other firms in the distribution chain. However, a firm identifying consumer harm elsewhere in the chain must raise the concerns with other relevant parties. It must also notify the GFSC where it becomes aware that another firm in the distribution chain may not be complying with the Duty. Depending on the issues involved, this might be the only action a firm needs to take.

• The Duty recognises the challenges for manufacturer firms in obtaining relevant information about customer outcomes from all distribution chain participants and provides alternatives to complete the information.

• Group synergies: The GFSC does not expect firms to duplicate the work of other entities in a group structure, but each firm would be responsible for ensuring that its business complies with the Duty.

• Clearer requirements have been set for the information provided to the distributors by the manufacturer.

• Commissions paid by customers should be considered in the Fair Value to demonstrate the value to the customer. If remuneration is not reasonably related to the distributor’s cost, level of involvement, or the benefit added by them, a breach of the regulation could be considered.

• For ancillary products, the manufacturer should consider whether the proposed distribution channel would be appropriate in light of the risk that the customer focuses on the core product rather than the insurance product.

Compliance Outsourcing Opportunities

During the GFSC 2023 annual conference a change with significantly impact was presented to the Insurance Firms: the opportunity to outsource the Head of Compliance regulated position to an insurance manager. However, this was not explicitly extended to the intermediaries at that time. Considering the intermediaries’ softer regulatory requirements in proportion to their lower risks, it was unproportioned that they were required to maintain an in-house fully dedicated Compliance expert (annual cost from £70,000 plus training costs) while the insurance firms were allowed to outsource the function. It has now been resolved with the amendments to the Financial Services Bill, which have included the “insurance intermediary” into the equation: “Head of Compliance may only be outsourced by an insurance undertaking, reinsurance undertaking or insurance intermediary, and only to a Gibraltar-based individual from a Gibraltar-authorised insurance manager.”

The post General insurance intermediaries regulatory challenges appeared first on Gibraltar International Magazine.

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.

The post Evolving insurance regulation in Gibraltar appeared first on Gibraltar International Magazine.

As part of the 25 years celebrations, we look back at the insurance industry over the same period, by David Coupe, InsureLaw and Yvonne Chu, Hassans International Law Firm

Gibraltar’s insurance sector was in its infancy. The regulatory framework was then governed by the Insurance Companies Act 1987 (“Insurance Act 1987”) and supervised by the Financial Services Commission.

In the UK, insurers were regulated by HM Treasury, and intermediaries were unregulated. Interestingly, insurance intermediaries were already regulated under Gibraltar’s Financial Services (Investment and Fiduciary Services) Act 1989.

In both the UK and Gibraltar, directors’ duties were based on common law principles. However, the tools available to the courts and regulators were weak in both jurisdictions, and rarely exercised.

The EU hadn’t had much direct impact either. Solvency I was in place, and Solvency II had not occurred. There was no Mediation Directive. There was little governance over the conduct of directors or products. A consumer duty was about as likely as a man on Mars! BREXIT was never discussed.

Companies law evolution

Companies law has changed considerably in both jurisdictions.

Gibraltar’s Companies Act 2014 modernised local company law, but, although based on the UK’s Companies Act 2006, it did not adopt the UK’s codified “general duties” and obligations of directors.

The Companies Act 2006 codified centuries of case law as regards directors’ duties. but with no material changes. The principal duty remained subjective i.e. a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. It is the director’s knowledge that matters based on the circumstances that presents itself to them.

UK Insolvency Law has not changed since 1986. The personal remedies for directors’ misfeasance, and fraudulent and wrongful trading, remain the same. The Enterprise case summarises and applies the relevant UK caselaw, although Gibraltar insolvency laws have some subtle differences. However, it is difficult for us to draw much from the case. The Court accepted expert evidence that Enterprise was insolvent much earlier than the date of formal insolvency. This seems to be substituting the directors’ view at the relevant time, knowing what they knew then, with a retrospective view many years later. This raises many potential uncertainties for insurance company directors though.

Directors’ Disqualification

Unlike the UK, Gibraltar does not have any statutory provisions or legal framework like the Directors Disqualification Act 1986. However, both the Gibraltar and UK regulators now have significant powers to sanction and ban directors under regulatory laws (see below).

Financial services revolution

The Gibraltar Financial Services Act 2019 (FSA 2019) is a significant step forward in regulating individuals who hold positions of significant influence, including directors, and board members require prior GFSC approval. The FSA 2019 also imposes onerous obligations on directors of insurance companies.

The UK Financial Services and Markets Act 2000 represented a major change in the UK, and subsequent regulations have extended these changes. The new 2023 Act goes even further.

The Financial Services Centre (FSC), and the UK Prudential Regulation Authority and Financial Conduct Authority, undoubtedly now have significant teeth. They now have powers to raise hefty sanctions, bans and fines against directors and companies alike.

Fit and proper test

In Gibraltar, the tests for being a director have increased under the FSA 2019 and the Regulated Individuals Regime. Further, with the introduction of Section 83A FSA 2019, further obligations are imposed on directors as they are now required to determine whether any transaction that comes before them constitutes a material change that is notifiable to the GFSC or needs its approval. This requirement needs much time to bed in, but has created much uncertainty amongst directors.

In the UK, almost anyone could become a director 25 years ago. Now there are high thresholds requiring directors to prove they have the requisite skill and experience, and they must undertake continuous professional development. Some insurers have long induction courses to ensure compliance.

The march of the consumer

Perhaps the greatest change will come from 1st August 2023 – the introduction of the UK Consumer Duty. Gibraltar is also transposing the consumer duty into local law. Directors will have the additional burden of proving that the rights of consumer are prioritised on any business decision that comes before them. They must ensure that the consumer is at the heart of their business, with potential sanctions if they do not. They must demonstrate that they have put the necessary framework in their business to champion the rights of the consumers. The directors are once again in the firing line if they are not able to demonstrate this.

D&O Insurance – partial pain relief

25 years ago, the use of this was limited. However, its use in Gibraltar became more widespread, after the introduction of the Regulated Individual Regime, and the onerous obligations placed on directors under the FSA 2019. The same has occurred in the UK after the 2006 Act.

D&O continues to offer comfort to directors but does not provide protection against all liabilities. Wordings and levels of cover vary considerably, and care is needed when assessing such policies. The same applies to professional indemnity and fidelity insurances.

BREXIT – good for directors?

BREXIT was not what Gibraltar wanted. It severed many direct avenues of distribution, caused duplication of capital requirements, and created hostile EU Regulators. However, it removed the complexities of dealing with EU markets. The Enterprise case showed some of those difficulties. Perhaps not having to deal with the vagaries of Europe will assist directors.

The UK

BREXIT meant that Gibraltar became very dependent on the UK – and vice versa! And this mustn’t be forgotten – 35% of the UK motor insurance market is written in Gibraltar. How the Gibraltar Authorisation Regime is implemented, and what it means for directors in both jurisdictions remains to be seen. However, one can expect more cross-border responsibility to arise, and directors potentially having an eye on two regimes at the same time!

The next 25 years increasing liability but more certainty?

Change will occur over the next 25 years, but probably not at the same pace. The regimes are already strong; legislators will simply look to plug holes as they arise.

Consumers will gain wider rights – perhaps even personal rights against companies or directors. The consumer challenges for directors will grow – whether the benefits to consumers will increase commensurately is debatable. The clash between prudential requirements and the consumer duty will become obvious – the higher cost of compliance and claims incidence arising from the duty will require more capital but will inevitably be passed to the consumer through higher premiums. However, whilst politicians see protection of the consumer as their mantra, the industry will need to respond.

Insolvencies will also continue – insurance is a risk business, and however one tries to ensure that insolvency doesn’t occur, the spectre will remain, and directors sued personally. Will a relaxation of the Solvency II rules cause more insolvencies?

Perhaps we have seen the end of the more radical changes. In 25 years’ time, perhaps this periodical can report that there is a clear level playing field where directors have full certainty as regards their legal and regulatory duties and liabilities. Today, they clearly do not, and uncertainty prevails.

The post Gibraltar’s insurance sector over the past twenty-five years appeared first on Gibraltar International Magazine.

Morgan Peters, Head of Compliance, Artex Risk Solutions, reports

In March, the Gibraltar Financial Services Commission (GFSC) held their 2023 Insurance Industry event, providing an opportunity to update the industry on their prior year thematic reviews, while also setting out their key regulatory priorities for the year. This was the first in-person industry event held post-Covid and, in a time of great global political and economic uncertainty, was attended with a keen sense of intrigue by over 100 Gibraltar based insurance professionals.

Continuing to trade with the UK

One of the key topics on everyone’s mind was the latest information regarding the ongoing regulatory alignment work with the United Kingdom via the Gibraltar Authorisations Regime (GAR), which will set out the long term framework for Gibraltar firms to continue to access the UK financial services markets in a post-Brexit world.

While the discussions are still progressing well, this may now not come into force until 2025. That said, the relationship between the UK and Gibraltar remains strong and the existing arrangements will remain in place until the GAR is implemented.

During an insightful opening address, the CEO of the GFSC, Kerry Blight, was quick to highlight that the GFSC’s key objective was to ensure that Gibraltar-based firms are subjected to the same high standard of regulation and supervision as those directly supervised by the Financial Conduct Authority (FCA)/Prudential Regulation Authority
(PRA), whilst maintaining the flexibility and approachability that has become one of the unique selling points for Gibraltar as a financial services domicile over the years1

Regulation tailored to Gibraltar

The focus is on “equivalence of outcomes” in a way which responds to the unique position of Gibraltar and the individual firms who operate in the jurisdiction. Gibraltar will, during the course of this year, be introducing its own version of the Consumer Duty and Operational Resiliency regimes already being implemented in the UK. In a world where Gibraltar accounts for 30% of the UK motor insurance market 2 3 and the fair treatment of customers is at the forefront of everyone’s minds, the GFSC have reiterated their commitment to ensuring that UK-based policyholders are afforded the same protection and care from Gibraltar- based insurers as they would if their insurer was under the direct supervision of the FCA.

The GFSC’s recent upscaling of its own Conduct of Business team is a testament to this and also demonstrates the importance of firms having effective compliance functions in place to monitor these positive customer outcomes and keep up with emerging regulation.

The post An insight into the recent GFSC updates for the Insurance Industry appeared first on Gibraltar International Magazine.

2022 has been a busy year for insurance conduct of business regulators in both Gibraltar and the UK, and subsequently the insurance industry. 2023 seems unlikely to be any quieter. In my opinion, having spent over twenty-five years in the insurance industry, in both commercial and regulatory roles, conduct risk deserves this enhanced focus.

But what does conduct risk really mean and why is it so important? Broadly, conduct risk covers the risk of firms acting in a way that causes detriment to their customers. Why is it so important? You could simply answer that question with ‘it’s the right thing to do’. If you need more convincing, you could look deeper into insurance firm failures. You will be unlikely to find a failed insurance firm which didn’t have underlying conduct or culture issues; a dominant CEO, for example, conflicts of interest, inadequate corporate governance, customer treatment not being sufficiently considered in the decision-making process… I could go on.

Customer protection

Both the Gibraltar Financial Services Commission (GFSC) and the UK Financial Conduct Authority (FCA) objectives aim to put customer protection at the heart of their focus. In 2022 both regulators introduced new insurance conduct of business reporting requirements and remedies, which are intended to help them and, more importantly, the Boards of firms themselves, ensure that their products work well for customers and that customers are treated fairly.

The FCA’s general insurance pricing practices rules ensure that renewing home and motor insurance customers pay no more than they would as a new customer, removing insurers’ ability to profit from customer inertia to change providers. They also make it simpler for customers to stop automatic renewals if they wish to do so. In addition, the FCA has enhanced its product governance rules, and data reporting requirements, to ensure that firms deliver fair value on all their insurance products. Furthermore, 2022 has .seen the GFSC launch its annual insurance conduct of business data report, which is closely aligned to the FCA’s reporting requirements.

Consumer Duty

The introduction of FCA’s new Consumer Duty is expected to bring about a step change in how firms across the financial sector, not just the insurance sector, behave. The FCA considers that the new Consumer Duty will “fundamentally shift the mind-set of firms” and establish an appropriate level of care to customers. The FCA expects the new rules to:

• Ensure that products and services have been designed to meet customer needs, characteristics, and objectives
• Ensure that the prices customers pay for products and services represents fair value to them
• Equip customers with the right information to make effective, timely and properly informed decisions, and
• Ensure customers receive the support they need.

The deadline (end of October 2022) has passed for firms to ensure that their implementation plan is in place and that the Board has scrutinised and challenged the plan to ensure that it is deliverable and robust enough to meet the new standards. Firms have until the end of July 2023 to implement the rules for new products and for existing products that are on sale, and until the end of July 2024 to implement the rules for closed products.

So what does this all really mean for the insurance sector, or indeed the wider financial services industry?

Managing conduct risk

In order for a firm to demonstrate good conduct, not only should they act lawfully and competently, they should act fairly and appropriately taking into account the wider impact their actions may have. Conduct risk should be embedded into everything a firm does, cutting across all departments and processes. As such, it’s less about having a single strategy for managing conduct risk, but more about embedding good conduct into the policies, procedures, and culture across the firm.

If they are not already doing so, firms need to consider the needs, characteristics, and objectives of their customers and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and be able to provide evidence that those outcomes are being met.

Regulators will expect firms to be able to demonstrate they have considered, identified, and documented the conduct risks they are exposed to. They will expect to see, where possible, those risks being mitigated with robust policies, procedures, and governance. Firms must be able to demonstrate compliance with the rules. Vitally, firms must be able to show that customer treatment has been considered in decision making, and that Boards have appropriate oversight, are giving challenge and are ensuring remedial action takes place where results are not as expected or within their own defined risk appetite and thresholds.

I question whether some firms have regarded conduct matters as the poor relation of prudential requirements. But increasing focus in this area will demand that firms need to up their game if they wish to succeed.

The post Is conduct the new boss? appeared first on Gibraltar International Magazine.

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.

Implementation

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.

Cost

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.

Prepare!

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!

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By David Coupe, Partner, Insurance and Corporate, at City based Birketts LLP EC3 Legal

The Spanish and the French have many things in common: great wine; good food; and fabulous holiday destinations. However, they share something more: the views from their borders. The Spanish have gazed longingly at the imperious white towering limestone monolith of Gibraltar, and the French have equally gazed over the imperious white cliffs of Dover. However, with BREXIT now completed, their respective holds over Gibraltar and the UK have been significantly diminished, if not totally dashed on the rocks. Gibraltar and the UK have gone their own way.

BREXIT has already created many difficulties – and will no doubt create many more going forwards. It will also create many opportunities and recognising and seizing these opportunities will define the success or failure of BREXIT. The EU door shut on 31st December 2020 to many financial services provided by Gibraltar and the UK, with passporting and other rights effectively terminated except for relatively limited purposes. However, as between the UK and Gibraltar, the future to grow wider links has considerably expanded. The UK has guaranteed the Gibraltar based entities will have entry to the UK financial services market, with Gibraltar reciprocating.

Reciprocal market access between the UK and Gibraltar

Work has been going on both in the UK and Gibraltar to ensure that regulated financial services entities will have full reciprocal passporting rights, just as previously under the EU Directives. The UK Government put in place transitional provisions for Gibraltar regulated entities under the Financial Services (Gibraltar)(EU Exit) Regulations 2020 which now have an extended effect until 31st December 2021.

The UK Government also published the draft Financial Services Bill on 21st October 2020 with the intention of replacing these regulations and augmenting the arrangements between the UK and Gibraltar. The following references are to such Bill as first published and may be subject to change as it progresses through Parliament.

The Gibraltar Government has confirmed the retention of the reciprocal market access through the draft Financial Services (Passport Rights and Transitional Provisions)(EU Exit) Regulations 2019 which came into effect on 1st January 2021 to preserve the Single Market Access for financial services post 31st December 2020 between the UK and Gibraltar. Under the previous regime, and subject to fulfilling the relevant requirements, insurers and intermediaries had full rights, either on a services basis or on an establishment basis, to operate freely between the UK and Gibraltar, and vice versa.

Further on 20th November 2020, the Gibraltar Government announced the publication of new regulations to allow EEA insurers to continue to provide specified policies to the Gibraltar market on a services basis at least for 2021. However, there is a need for such insurer to work with a Gibraltar insurance intermediary.

The proposed UK changes in the Financial Services Bill

These are dealt with in Schedules 6, 7 and 8. Schedule 6 sets out at length the requirements placed upon Gibraltar based persons carrying on activities in the UK, and Schedule 7 deals with UK persons carrying on activities in Gibraltar. Both are primarily concerned to ensure that persons trading in the other jurisdiction are properly monitored. Schedule 8 sets out limited rules that the FCA and PRA must not make any provision prohibiting Gibraltar based persons from carrying on their authorised regulated activities in the UK.

The UK expectations

The UK Government has created a regime in Schedule 6 which allows it to make regulations to manage Gibraltar insurers and intermediaries so as to ensure that they cannot disturb the soundness, stability and resilience of the UK insurance markets. Inevitably, they expressly intend to protect consumers, and the operation of the FSCS. The intention is to ensure that there is complete alignment in law and practice between the two jurisdictions.

The Gibraltar changes to the Insurance Intermediary Laws

In Gibraltar, the Financial Services Act 2019 (FSA 2019) came into force on 15th January 2020: all 667 pages of consolidating legislation and initially 41 supporting regulations! It now gives a clear, navigable path as regards the regulation of financial services, including in relation to insurance, and the regulation of insurers and intermediaries. Any entity that wish to undertake regulated activities by way of business in Gibraltar will need to apply for permission under Part 7 of the FSA 2019. It will also need to comply with its sector specific set of regulations and in the case of insurance intermediaries and insurance distribution activities, it is the Financial Services (Insurance Distribution) Regulations 2020. These regulations were primarily derived from the EU Insurance Distribution Directive (IDD).

Historically, insurance intermediaries in Gibraltar were authorised and regulated under the Financial Services (Investment and Fiduciary Services) Act 1989. Although the laws of Gibraltar provided for the licensing of Managing General Agents (MGAs) and insurance brokers who wish to undertake insurance distribution activities in Gibraltar, there were certain practical obstacles to the setting up of these MGAs and brokers and to their conduct of business in Gibraltar.

The Government of Gibraltar recognises that the regulation of MGAs, in particular wholesale MGAs should be dealt with differently from insurance brokers and as a result on 26th November 2020, and the introduction of the Financial Services (Insurance)(Miscellaneous Amendments) Regulations 2020, subtle changes were made in particular, to the Financial Services (Insurance Distributions) Regulations 2020 and the Financial Services (Insurance Management) Regulations 2020 to allow a smoother setting up process and make Gibraltar a more attractive jurisdiction for MGAs and brokers to operate in Gibraltar and potentially the UK.

Outsourcing – Gibraltar laws were surprisingly silent on the outsourcing by intermediaries to third parties of functions and services. Whilst Gibraltar has a number of experienced authorised insurance managers to whom outsourcing could occur, such managers have only been able to manage insurers. The changes to existing laws will now permit these authorised insurance managers to manage insurance intermediaries. This will allow them to offer the turnkey back office structures that we see in the UK, ensuring that each Gibraltar authorised intermediary is properly established and can fulfil its regulatory duties both in Gibraltar, but where necessary in the UK too. This added flexibility removes the need for the large start-up costs that intermediaries usually incur. It also ensures that those already versed in local compliance requirements can provide those services, and allow the business producers to focus on what they do best.

Client Monies and Risk Transfer – UK client money rules (CASS 5) make the distinction between client monies and “risk transfer“monies. Gibraltar law has now been changed to clarify this distinction and to bring it into line with the UK CASS 5 rules. The laws now state that “customer monies” are excluded from the customer money rules (i.e. need to be held on trust for the customer) where there is a clear provision in the agency agreement with the insurer that this is the case. This is now parallel to the UK CASS 5 rules that there must be clear agreement with the insurer for effective risk transfer to occur, and that it is receiving such monies as agent for the insurer. The only slight difference to the UK regime will be that intermediaries dealing with retail consumers will need to notify such consumers that “risk transfer” applies, and the effect that that has upon them.

Gibraltar regulatory expectations

Gibraltar laws and regulations should not be thought of as an easy regime. As expressed by the Chief Minister Fabian Picardo, it is the “right touch not a light touch” regime. One, however, must always bear in mind the powers reserved to the FCA and the PRA under Schedule 6 to intervene if necessary. Observing UK conduct rules and preventing consumer harm will remain of considerable importance to a Gibraltar entity operating in the UK.

Gibraltar regulation does offer many advantages. The Gibraltar Financial Services Commission (GFSC), the financial services regulatory body in Gibraltar, are knowledgeable about the insurance market and its dynamics, and are able to deal with enquiries and applications in a very responsive manner. It is also easier to have meetings/e-meetings with them than most other regulators in order to be able to discuss business plans and issues, and to keep them fully informed of what is happening in the business. The GFSC also encourages pre-application meetings with applicants and this helps smooth the application process when they understand the business plans and the principals behind the applicants.

Whilst Gibraltar does not have such a prescriptive regime such as the UK’s SMCR regime for directors and managers, it is expected that each intermediary must have a conduct risk framework to identify and manage its conduct risk. This needs to deal with not only its own conduct, but others in the distribution chain and authorised service providers. Gibraltar, however, does have the “Regulated Individuals” regime which is similar to the previous “Approved Persons Regime” in the UK which has now been replaced by the SMCR. As such, any individual performing a regulated function (set out in Schedule 14 of FSA 2019, such as executive director, head of claims, head of underwriting etc.) must be approved by the GFSC before undertaking the said function.

Effective conduct risk frameworks must, like in the UK, consider culture, governance, product design, sales and post-sale servicing. This may also include claims management, although this aspect will usually be dealt with by the insurer.

Each intermediary must hold the minimum capital set out in the Financial Services (Insurance Distribution) Regulations 2020 (namely, 4% of annual premium received or projected annual premium in the coming year) in addition to financial resources that are the equivalent of 3 months’ worth of operating expenses or the level required to fund an orderly winding down of the operations if ever necessary. Obviously this amount could vary considerably according to whether one is a wholesale or retail intermediary. This very much aligns to the FCA’s own recently published expectations regarding the holding of operating cash.

Intermediaries authorised in Gibraltar will be supervised by the GFSC. The intermediary will need to ensure that the GFSC can access its systems, records and other relevant information. This necessarily means that control of these operations needs to occur in Gibraltar, and hence the importance of local insurance managers now being permitted to assist with this. However, this will not remove the need for experienced local directors and also non-executive directors (although these need not be local) to be appointed in order to satisfy the “four-eyes principle” of corporate governance.

In terms of board members, the GFSC have expressed that it will take a pragmatic, holistic and proportionate approach to this issue, taking into account the intermediary’s size, nature and complexity of its business model and structure. There is to be no minimum or maximum number of directors on the board, but there needs to be an executive director who is approved individually under the relevant Gibraltar legislation and a local non-executive director on the board.

The GFSC place equal emphasis to the FCA on making sure that the intermediary is able to ensure a good customer experience for consumers, and to have adequate business continuity plans. This requirement is one that the board of the intermediary consider carefully in planning its risk conduct framework.

Outsourcing to insurance managers will be important to the development of the market. Continual assessment of the agent’s ability to provide the agreed services to the correct level will be required, and service standards with regular review meetings will be needed. Outsourcing to insurance managers of accounting, risk and regulatory requirements will be acceptable. However, dealing with complaints should not be outsourced, and the intermediary will need to determine how these will be best dealt with.

Applications in Gibraltar

All applications by Intermediaries for Gibraltar permissions must comply with the requirements imposed under Part 7 of FSA 2019. This involves a considerable amount of preparation and prior consultation. It is expected that once a completed application is received by the GFSC, the relevant period of determination by the GFSC is c3-4 months.   The applicants are expected to satisfy and demonstrate that they can comply with the threshold conditions under Schedule 12 of the FSA 2019, such as:

(a) location of offices (in respect of insurance distribution, its registered office must be in Gibraltar and if no registered office, its head office must be in Gibraltar);

(b) appropriate resources (the business of the firm must be conducted in a sound and prudent manner);

(c) effective supervision (the firm must be capable of being effectively supervised having regard to all the circumstances);

(d) suitability (the firm concerned must be a fit and proper person), and

(e) a business model (the firm’s strategy for doing business) which is suitable and compatible for the person carrying on the regulated activities and how the affairs are being conducted, continuing to be conducted in the interest of consumers, and the integrity of the Gibraltar financial system; and

(f) fees – the firm concerned must pay such periodical and other fees as the Minister for Financial Services may by regulations prescribe.

Applying to operate in the UK under a cross border services basis and/or via a UK branch basis

Application by a Gibraltar licensed entity to operate in the UK will be under a new framework known as the Gibraltar Authorised Regime (GAR) which is created under the Financial Services Bill. The Gibraltar licensed entity will be required to notify the GFSC of its intention to operate in the UK, who, assuming that they consider the application to be in order and consent, then pass this to the FCA. The notification process is expected to be similar to the current EU Single Market notification, although the UK Government has expressed its intention to simplify the existing notification arrangements and it is proposing that new Gibraltar firms will be able to access the UK market within two months from the date on which the UK regulators receive the GFSC notification with all required information (including confirmation that the GFSC has given firm consent to access the UK market). The FCA will, inter alia require the following:

(a) The identification of the person responsible for managing the Gibraltar entities affairs in the UK, and describe such responsibilities;

(b) Details of the UK branch structure; and

(c) Rather obliquely, such other information as it may prescribed from time to time. This can be presumed to include all other information that a UK authorised intermediary may be required to provide (especially in relation to retail consumer business).

Undoubtedly, the outsourcing of compliance requirements (perhaps to a manager operating in both Gibraltar and the UK) will be required.

Proposed amendments to the Protected Cell Companies Legislation

Gibraltar has a protected cell company (PCC) regime which allows for cell insurers to be set up under the control of the PCC’s board of directors. It is only currently used by captive insurers. It is hoped that in 2021, the PCC legislation will be extended to include allowing cells for brokers and MGAs. This will allow managers to offer integrated insurance solutions going forwards, perhaps with further alignment into the reinsurance market.

Conclusions

Gibraltar insurers already account for over a quarter of the premiums paid in the massive UK motor market. Gibraltar already has a number of brokers and MGAs actively participating in the UK markets. Since the announcement of the new regime in November 2019, and in anticipation of the new changes, there have been a number of applications for registration of new MGAs and insurers. Setting up a Gibraltar intermediary will not be for all. However, throughout the COVID pandemic, Gibraltar has remained open for business, has pushed through the changes, signed a beneficial tax treaty with the UK, and now has become a viable alternative from which to base an intermediary authorised to do insurance business in the UK.

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Is the Coronavirus emergency impacting insurers’ solvency? This is the big question that insurance business leaders are looking for clarity on. Dominic Sharp, Head of Actuarial Services and Darren Vinales, Senior Actuary, Robus Group, reports

Distinguishing between the short-term evidence of what has happened so far and what could happen in the medium to long term is important to consider.

Looking at actual impact on insurers, it’s still early days. Underwriting volumes are down as people stop instalments, decide not to renew or not to take up a new cover. Any lines that are sold as add-ons will be materially impacted, e.g. extended warranty and motor ancillaries such as gap insurance. Gibraltar is already seeing this, where a lot of this kind of business is underwritten. It is also seeing reductions in claims frequencies on both Motor and Household policies.

These impacts (particularly Motor) have been noted. Steve Quinn, Managing Director of Premier Insurance commented, “The Motor market is challenged in much the same way as all industries across the globe in not knowing how long this uncertain and distressing period is going to persist for all concerned, and what the net effect is going to be for the various stakeholders in the market”.

Some other insurers have experienced significant drop-off in premium volumes and claim frequency and added that they are focused on claims inflation as repair networks and supply chains are squeezed.

More widely, in terms of direct impact, we expect that travel insurance and business interruption will be heavily impacted but there is little exposure to these lines for Gibraltar insurers.

So, counter-intuitively, we consider that the short-term impact on solvency ratios of Gibraltar insurers is likely to be beneficial, primarily as a result of falling premium income.

In the medium and long term, the impact is harder to predict with considerably more influences on the ratio to factor in.

Whilst Covid-19 is a humanitarian disaster, the number of people affected in the wider population is still a relatively small percentage and likely to remain so. This is particularly the case away from the front line which is where the insurance industry is positioned. Also, the insurance industry is generally more mobile than most and so it is considered that it is unlikely to be materially impacted from an operational perspective. We have seen this with Gibraltar insurers that we are familiar with; operationally, they have proved resilient with most key functions now relocated to home environments.

Shareholders of (re)insurers may be less willing to commit capital due to liquidity and/or solvency concerns. Some reinsurers will become insolvent resulting in credit events for insurers.

Investors may be similarly less willing to provide capacity. Capacity in the reinsurance markets may be affected which could result in further increases to reinsurance costs coming hot on the heels of rate rises due to the UK’s Ogden discount rate decision in July 2019.

Insurers’ expense base is largely fixed and so reductions in business volumes will reduce profitability. Adjusting the expense base is slow and can incur additional costs.

The markets have suffered and so there will be pressure on asset valuations. Insurers tend to be conservatively invested as a result of Solvency II but we think there will still be an impact at some point.

Insurers will need to focus on liquidity from all sources although it is expected that state interventions will help here. The likelihood of insolvencies caused by liquidity strains will increase.

There is a potential increased risk of frauds, both in the scope for fraud and the likelihood of it occurring as people’s circumstances deteriorate.

Finally, it is likely that with the lockdowns, activity such as claims adjusting will operate less efficiently with the potential for increased claims leakage and a slow-down in settlement patterns.

It is hard to say exactly how solvency ratios will be impacted since there are many influences, as we have set out. However, it is believed that negative influences will outweigh positive ones meaning that solvency ratios are likely to suffer in the medium to long term with the resulting potential for increased regulatory scrutiny and, ultimately, failures.

Insurers should think through these issues to see how their businesses are exposed. In our experience it is important to balance quantitative analysis, including running revised scenarios through their capital models, and qualitative analysis where the focus should be on risk management. This will help to gain insight into the dynamics and to understand which influences are dominant.

In this more volatile environment insurers should be considering the appropriateness of their risk appetite statements as well as their capital buffer over regulatory minimum levels.

It is expected that all Boards will need to revisit business plans and ORSAs as existing scenario modelling is unlikely to capture the full range and extent of stresses to businesses caused by Covid 19.

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By Dale Cruz, Partner EY

As compliance teams struggle to manage the ongoing workload from the Fourth Money Laundering Directive, how do they ensure their systems are up to scratch? External validation can be a great opportunity to calibrate internal controls and processes. The directive requires firms to have an internal audit function that determines the need for independent audits.

An independent AML/CFT audit ensures that businesses keep on track and prioritise change and implementation addressing new risks identified. It can be carried out by internal staff members providing the individuals involved in the audit team are independent of the compliance function and sufficiently competent to undertake the work. The difficulty faced by smaller organisations is that this kind of expertise is generally only available within the compliance function. In places like Gibraltar, this is very common and so the only option is to outsource this to an external firm.

The outsourced firm would carry out an assessment of compliance with the Regulations and of effectiveness of controls. It can also highlight changes in regulations which may affect risk ratings, and therefore require changes in the mitigations and controls. The reach is both broad and deep and the implications for an independent audit, significant. Interestingly, the requirement to undertake an audit is determined by each firm on a risk based approach and should be assessed at least annually as to the frequency and scope.

Not all entities are captured. The entities captured by the GFSC are as follows:

– All financial institutions (FI) as defined in Section 7 of POCA 2015 which include Banks, Electronic Money Institutions, Life Assurance Companies, Investment Firms, and DLT Providers.

– Relevant Financial Businesses as defined in Section 9 of POCA 2015, which are not FIs, such as real estate agents, exchange bureaus, accounting and audit firms if they have: five or more full time employees or have a turnover of £1,000,000 or more.

– Trust and Company Service Providers if they have 50 or more trusts under management or have 100 or more companies under management.

The GFSC guidance states this as an expectation but a clear inference could be drawn from this ‘expectation’ to need if the firm is operating with a coherent risk assessment that includes on-going monitoring of risk exposure to risk appetite and all within the demands of the Fifth AML Directive. In short, to know what has changed and what impact this might have on how the firm operates.

What’s next?

No sooner does the Fourth Money Laundering Directive become embedded in the financial system than a fifth looms large on the horizon.

Although not considered as extensive as the Fourth Directive, which required a wholesale change in how businesses approach money laundering, it does continue the focus on the risk elements. In fact, the Fifth Directive constitutes a series of amendments to the structure of the Fourth Directive which adds a range of additional provisions. These focus on enhanced powers for direct access to information and increased transparency around beneficial ownership information and trusts. There are three key developments on the fourth directive that have direct implications for risk:

1. Regulation of virtual currencies and pre-paid cards to prevent terrorist financing
2. The improvement of safeguards for financial transactions to and from high risk countries
3. Ensuring centralised national bank and payment account registers, or central data retrieval systems, are accessible in all member states

The final text was published in June of 2018 and it allowed EU member states 18 months to transpose this into law. Some states moved quickly but some have lagged behind only completing this work in December. The implementation is in three key stages. The first two were on 10th January for the set up of Beneficial ownership for corporates. The 10th March will be for the set up of Beneficial ownership of trusts.

The third key date to be aware of is 10th September when automated centralised mechanisms should be set up to allow identification of those who hold, or control, payment accounts and bank accounts.

What this means for business is a sharper focus on risk and the need to treat risk as live and an on-going concern. Firms have always known that risk management and client relationships are not a one-off function but what the Fifth Directive seeks to achieve is the cementing of those processes, i.e. having processes in place to facilitate continual screening and monitoring of all relationships.

All in all we are seeing increasing transparency of beneficial ownership, tighter controls for high risk countries, clarification of PEPs etc and so the element of assessing and enacting an independent audit looks less like an expectation and more like an essential function of a firm’s risk management.

The post Is your compliance compliant? appeared first on Gibraltar International Magazine.