FCA regulation of pre-paid funeral plans

After several high-profile publications and investigations[1], the Government decided that funeral plans should be regulated by the Financial Conduct Authority (FCA) by the summer of 2022.

There are various reasons for this move to regulation and concerns have been identified about the detrimental effect to the consumer in the pre-paid funeral plan market.

What are the expectations for funeral plans regulation?

The government’s objectives, which the FCA intends to fulfil from July 2022, seek to ensure that:

  • Products meet the individual needs of consumers and are sold to them fairly
  • All pre-paid funeral plan providers are subject to robust and enforceable conduct standards 
  • There is enhanced oversight of providers’ prudential soundness 
  • Consumers have access to appropriate dispute resolution mechanisms if things go wrong

Proposed FCA rules have been recently published in its Consultation Paper. The Government on the other hand has confirmed various policy decisions within the response to its consultation. These are unlikely to change:

Regulated activities and authorisation

Firms will need to apply for authorisation from September 2021 and be authorised by 29 July 2022. They must be able to demonstrate how they meet the standards to carry out regulated funeral plan activities.

Some providers may choose not to apply for authorisation at all. In such circumstances, they would need to sell their book of business before the new regulatory framework comes into force. If no authorised provider were willing to take it on, the firm would need to wind-up their business in an orderly way.

Intermediaries and appointed representatives

The intention is for all activities undertaken by intermediaries to come within scope of the new regulatory framework. Unauthorised intermediaries will need to become appointed representatives of ‘principal’ firms, although business structures should be considered on a case-by-case basis.

It is important to note that the activities of the funeral director in providing the end service will not be FCA regulated and this has been separately considered by the Competitions and Markets Authority (CMA).

Financial Ombudsman Service (FOS)

From 29 July 2022, the FOS will deal with complaints:

  1.  for funeral plans entered into after the new regulatory framework comes into force; and,
  2.  about providers who had previously registered with the Funeral Planning Authority (FPA), even where plans have been transferred to other providers. The availability of redress would depend on commercial liability between the providers.

New FCA rules

The FCA will add provisions for funeral plans to its handbook of rules and guidance, namely a new sourcebook called ‘Funeral Plan: Conduct of Business sourcebook’ (FPCOB).

The main aim of the FCA is to achieve good outcomes for consumers in this sector; that they receive the product they’ve paid for, and that their funds are looked after and used responsibly.

The new rules will counter the concerns around customer detriment. Key areas include:

  •  Sales disclosures and clarity of information
  •  Management of funeral plans after the point of sale
  •  Handling of claims and settlement
  •  Payment of contracts including the collection of premiums paid in instalments
  •  Administration and cancellation fees
  •  Restrictions on the types of assets that consumer’s money can be invested in

The FCA’s wider requirements and expectations on regulated firms will also apply such as: Senior Managers and Certification Regime (SM&CR), dispute resolution, threshold conditions (including capital adequacy), client money and conflicts of interest.

Next steps

The sector can now opine and provide feedback on the proposed regulation until the end of the consultative phase on 13 April 2021. The concerns leading to these new regulations have been well-publicised and so providers can work to address these before the regulatory framework is finalised.

The CMA is taking forward a set of remedies to “shine a light on the pricing and back of house practices of the sector”. Whilst these remedies are focused on funeral directors rather than funeral plan providers themselves, it is worth noting that their measures include:

  • requiring price information to be provided in a specific format; and,
  • disclosure of certain information about their business, financial and commercial arrangements to customers.

Again, this indicates price information and disclosure are likely to be an area of scrutiny for funeral plans.

The cost of authorisation and ongoing compliance may need to be analysed in making decisions around authorisation, transfer of books of business, or wind-down. It is hard to say for certain how much this will cost, however, the Government’s impact analysis and the FCA’s cost-benefit analysis (within the Consultation) are good places to start.