The FCA has announced the rules that will apply to funeral plans from next July.

The Financial Conduct Authority has confirmed the rules that will apply to funeral plan providers when it takes over as regulator of the sector on July 29 2022.

The changes that firms can expect include:

  • A ban on selling instalment plan products that don’t guarantee to deliver a funeral, or which require an additional payment to be made at the time of death. A moratorium will apply here though in which there is no obligation to deliver the funeral if death occurs within two years of the plan being taken out, and in these circumstances the firm would simply refund the payments made
  • A prohibition on cold calling
  • A rigorous set of detailed rules regarding promotional material
  • An over-riding obligation to only sell plans which are suitable for the individual customer, and to treat all customers fairly at all times
  • A ban on commission payments to intermediaries
  • New standards relating to the fitness and propriety of the firm and its management
  • Various pre-contract disclosure requirements, such as providing customers with information about the firm and its services, the complaints process, whether the firm provides advice, any fees payable, the price of the contract etc.
  • An obligation to send a plan statement to the customer every three years
  • The introduction of a cancellation period. Customers will be able to cancel their plan free of charge within the 30-day period following the date on which they entered into a funeral plan contract. An additional free cancellation period will apply for the first seven days following the appointment of a funeral services provider
  • A requirement for the firm to appoint a funeral services provider within 30 days of the plan being taken out
  • A rule requiring firms to deliver a minimum of 15 hours of training and development per employee per year
  • The right for customers to refer complaints about firms in this sector to the Financial Ombudsman Service

The rules that specifically relate to the funeral plan sector will form a new section of the FCA’s Handbook known as the Funeral Plan: Conduct of Business sourcebook (which will often be known by the abbreviation FPCOB).

Firms will also have to comply with the following sections of the Handbook, which are relevant to firms the FCA regulates in all sectors:

  • Principles for Businesses (PRIN) – 11 high-level requirements
  • Threshold Conditions – the basic criteria a firm must satisfy in order to be authorised
  • Systems and Controls (SYSC) – which explains how firms must organise their business affairs to ensure compliance
  • General Provisions (GEN) – which covers issues such as how firms disclose their regulatory status

The FCA calls on firms to start the process of preparing their authorisation application. Applications can be submitted from September 2021 onwards, and those who apply in September or October, as opposed to leaving it until November, or later, will receive a 40% discount on their application fee.

Any firm that does not intend to continue trading after July 29 2022 should also make plans to either transfer their existing books of business or wind down the firm’s affairs in an orderly way. The FCA says “it is unacceptable and may be unlawful” for a firm to offer funeral plans now on which they might not be able to deliver in the future, because they don’t intend to be FCA authorised.

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented:

“Funeral plans should provide customers with comfort and certainty that their affairs are in order.

“Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations. We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it.

“As we take over the regulation for this market, we will be rigorously assessing firm’s fitness to operate. Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.”