Insurers aiming to set up operations in Gibraltar could face tougher financial controls and the introduction of risk-based capital analysis.
The Rock is a current favourite, particularly among personal lines insurers looking to set up a parallel operation with their UK base.
They have been attracted by quicker official responses to business applications and the perception of a lighter regulatory touch.
But Gibraltar regulators could soon be forced to bow to international pressure to apply risk-based capital analysis - where the risks on an insurer's accounts are balanced against its assets when measuring its financial strength.
The FSA is currently lobbying for a tough and radical approach to insurance regulation in the key Solvency II project - a Directive set to reshape insurance supervision across the EU.
Its effects could include risk-based capital analysis of all insurers and the scrapping of insurance regulatory returns. These would be replaced by new ways of assessing and reporting insurers' strengths.
Gibraltar is obliged to match the UK's obligations.
An FSA spokesman said: "We're using what influence we have in Europe to help push the Directive into a way that will lead to better, more risk-based regulation and get the capital needs in a more realistic form.
"We are working with the other EU regulators to develop Solvency II, which will quite radically change the way prudential regulation of insurance works in the EU."
The tough new approach is not due for implementation until 2009, but insurers looking for a lighter regulatory environment than the UK could find their options limited before then, as regulators see which way the wind is blowing and bend to fit in.
Gibraltar's Financial Services Commission insurance commissioner Chris Collins said: "Risk-based capital will come very high on our agenda in the next couple of months."
Some insurance chiefs believe the writing is already on the wall for more flexible jurisdictions such as Gibraltar.
The head of one UK-based group said: "We looked at Gibraltar, but it isn't worth it.
"You'll have the FSA crawling all over your capital allocations. We don't like it."
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