Consumer Duty

Gibraltar’s Consumer Duty regime is contained in the following regulations, which came into effect on the 9th of May 2024:

  1. The Financial Services (Core Principles and Consumer Duty) Regulations 2024 (the ‘CPCD Regulations’)
  2. The Financial Services (Insurance Product Oversight and Governance) (Technical Standards) Regulations 2024

The regime’s obligations currently apply to Gibraltar firms that conduct regulated activity in the UK (other than DLT Providers), in respect of their UK retail customers, whether or not the firm engages with these customers by virtue of a market access right or otherwise.

At a date to be appointed by the Minister, the scope of the regime will be extended and the Consumer Duty will apply to all Gibraltar financial service providers, in respect of all of their retail customers, regardless of where they are located.

The Consumer Duty Regime

The Consumer Duty (the 'Duty’) sets the standard of care that firms should give to customers in retail financial markets. It sets expectations that can apply flexibly and dynamically to new products, services and business models as they continue to emerge and develop in a changing and increasingly digital environment. So, it better protects consumers from current and new/emerging drivers of harm and gives firms more certainty of our expectations to support innovation, competition and new ways of serving customers.

The Duty consists of a new, overarching obligation and an underlying framework of requirements, as well as guidance on their application. The new overarching obligation is that: “A firm must act to deliver good outcomes for retail customers.”

Under this sit three ‘Cross-Cutting Requirements’, contained in Regulation 8(1) of the CPCD Regulations which:

  • develop the expectations for behaviour through three wide-reaching requirements that explain how firms should act to deliver good outcomes and apply across all areas of firm conduct; and
  • inform and help firms interpret the Four Outcomes.

The three 'Cross-Cutting Requirements' are that firms:

  1. Act in good faith towards retail customers;
  2. Avoid causing foreseeable harm; and
  3. Enable and support retail customers to pursue their financial objectives.

The ‘Four Outcomes’, contained in Parts 2 to 5 of the Schedule to the CPCD Regulations, set out more detailed expectations for firm conduct in four areas that represent key elements of the firm-consumer relationship:

  • the governance of products and services;
  • price and value;
  • consumer understanding; and
  • consumer support.

The Duty is underpinned by the concept of reasonableness. This is an objective test and means that the CPCD Regulations must be interpreted in line with the standard that could reasonably be expected of a prudent firm carrying on the same activity in relation to the same product or service, and with the necessary understanding of the needs and characteristics of the customers in the relevant target market.

The GFSC’s Expectations of firms under the Consumer Duty:

Firms should:

  • put consumers at the heart of their business and focus on delivering good outcomes for customers;
  • provide products and services that are designed to meet customers’ needs, that they know provide fair value, that help customers achieve their financial objectives and which do not cause them harm;
  • communicate and engage with customers so that they can make effective, timely and properly informed decisions about financial products and services and can take responsibility for their actions and decisions;
  • not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability;
  • support their customers in realising the benefits of the products and services they buy and acting in their interests without unreasonable barriers;
  • consistently consider the needs of their customers, and how they behave, at every stage of the product/service lifecycle;
  • continuously learn from their growing focus and awareness of real customer outcomes;
  • ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation;
  • monitor and regularly review the outcomes that their customers are experiencing in practice and take action to address any risks to good customer outcomes; and
  • ensure that their board or equivalent governing body takes full responsibility for ensuring that the Duty is properly embedded within the firm, and regulated individuals are accountable for the outcomes their customers are experiencing.

Supervisory Approach

The GFSC will commence a series of thematic reviews of firms’ compliance with the rules in quarter three 2024. The initial thematic will be focussed on firms’ Governance of the Duty.  Firms in scope of the review will be contacted under separate cover in due course.