Although the Financial Conduct Authority will not assume responsibility for regulation of pre-paid funeral plans until July 29 2022, it has already commenced its consultation on how it will regulate the sector.
The tough new regime will see a ban on funeral plans that only pay out in certain circumstances on death. Firms will be unable to pay commission to intermediaries and they will be prevented from cold calling to sell the plans. Any fees they charge must be a fair reflection of the costs they incur and must not be used to drive profits.
Under the new rules, firms will need to send customers product summary documents which set out the main features, exclusions and limitations of their plans. Customers will also need to receive annual statements.
The consultation paper says that, for some firms, “meeting our standards will necessitate a significant change in business practices”.
As widely expected, customers will be able to complain to the Financial Ombudsman Service when they are unable to resolve a dispute with their funeral plan provider. Additionally, customers will have access to the Financial Services Compensation Scheme should their provider become insolvent.
Most of the key elements of the FCA regulatory regime will apply to the funeral plan sector, starting with the Principles For Business, which are 11 high level principles that all authorised firms must follow. The most frequently mentioned Principle is number 6: “A firm must pay due regard to the interests of its consumers and treat them fairly”.
The FCA also frequently stresses the importance of treating vulnerable customers fairly. The consultation paper says that the regulator’s vulnerable customer guidance could be particularly relevant here as “many consumers buying funeral plans or engaging with funeral plan firms will be in vulnerable circumstances, e.g. due to low financial resilience or recent bereavement.”
Senior management of firms will need to be sufficiently experienced to ensure the sound and prudent management of the firm. Firms will be subject to the Senior Managers & Certification Regime, where individual authorisation will be required from the FCA for anyone who carries out certain defined senior roles; and where the firms themselves will be required to certify the competence of anyone else with significant internal responsibilities.
FCA authorisation will be required for all funeral plan providers and for all other firms that administer these types of plans. Funeral directors will not come under the scope of FCA regulation unless they are also involved in distributing funeral plan contracts.
Firms in the funeral planning sector who are intending to continue trading after July 2022 will be expected to submit their application for authorisation to the FCA between September 1 and October 31 2021. Any firm that applies after November 1 may be charged a higher application fee.
It will be possible for firms to become appointed representatives, as opposed to being directly authorised by the FCA. An appointed representative firm is not themselves authorised by the FCA, but is supervised by another firm, which has successfully applied for authorisation.
Any firm that does not intend to continue under the FCA regime is expected to commence planning for an orderly wind-down of its affairs.
Responses to the consultation can be submitted to the FCA until April 13.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
“Pre-paid funeral plans can help people and their families to manage the costs of a funeral. It is vital that consumers have confidence that their plan will deliver the funeral they expect at a fair value. The measures proposed today will help ensure that the industry serves consumers well. It’s imperative the industry prepares now, ahead of its upcoming entry into financial services regulation.”