26Apr

Scott Robert Compliance Ltd will help and support all Funeral Plan providers with support and compliance guidance to be Application ready for the dates of submission. We provide policy and implementation guidance as well as Staff training.

For immediate help and any other questions relating to your required FCA Authorisation need,

Contact Us

0161 914 5727 or email enquiries@scottrobert.co.uk

Funeral plans are products under which a consumer pre-arranges and pre-pays for their funeral with a provider, generally for a fixed cost. They were designed to fix the cost of the funeral for the customer and to settle the payment early to usually prevent the family from covering the cost of the funeral when the customer dies. However, if the customer died without fulfilling the full payment the family would be charged the difference. From the 29th of July 2022, the provision and distribution of pre-paid funeral plans will come under FCA regulation.

On the 26th of March, the FCA held webinars providing an introduction to FCA regulation for funeral plan intermediaries and funeral plan providers. In these webinars, the FCA provided guidance on the process for seeking FCA authorisation and some of the proposed rules which will come into effect in July 2022 for funeral plan providers and intermediaries. This article seeks to act as a summary of the FCA’s proposed changes and what steps funeral plan firms will need to complete before July 2022.

Please note that the FCA’s consultation on the draft rules and guidance for the funeral plans sector ended on the 14th of April and the next steps will be for the FCA to publish feedback on responses and issue a Policy Statement which is expected for Q3 of 2021.

Rule Changes

For funeral plan providers, the FCA’s overall expectation is that the funeral plan product becomes a guaranteed funeral for when the plan holder passes away, irrespective of the amount the plan holder has managed to pay by that time. This means that providers will no longer be able to seek the difference with the plan holder’s family if the plan holder had not paid all the cost before their passing. The product should be delivered to the extent that it was represented to the plan holder on sale.

Furthermore, the FCA has suggested administration or cancellation fees should not be another source of profit but rather a reasonable reflection of cost or recovery. In line with these proposed changes, all funeral plans will be expected to be backed by either a trust or an insurance arrangement and providers will be required to assign a funeral director within 30 days of the customer acquiring the product.

For funeral plan distributors (those firms who broker or introduce customers to funeral plan providers including funeral directors and will writers), the most significant change is the blanket ban on earning commission for introductions. The FCA considers that this activity provides little value to consumers and was concerned with the amount of commission such distributors currently receive.

In another significant change for the sector, the FCA is considering preventing funeral plan distributors from holding client money. This would stop customers from being able to make cash payments to a funeral plan distributor to pay for their funeral plan.

Other significant changes for distributors and providers will come largely through the regulatory framework of the FCA which will include: rules on financial promotions (communications which are designed to induce or invite customers to engage with any regulated activity i.e. advertisements), an FCA sourcebook (the name of which is proposed to be FPCOB – The Funeral Plan Conduct of Business sourcebook), and the FCA’s principles for business (PRIN) as well as other FCA Sourcebooks including but not limited to SYSC, SUP and COCON.

Firms must also be aware that the FCA will require firms to continuously satisfy a prudential resource requirement. As a minimum, this requires ongoing solvencies for all firms to become and remain authorised and the FCA is proposing a 110% solvency threshold for funeral plan providers. This is in addition to the requirement to satisfy the FCA’s Capital Resource Requirement (a segregated amount of funds that the firms must maintain) which for providers will be at least £20,000 and at least £10,000 for distributors.

The Application Process

Before July 2022, firms that do not wish to be authorised will need to wind down their business and cease trading. Those that do wish to continue trading must seek authorisation from the FCA, or, if they are a funeral plan distributor, may instead look to become an Appointed Representative. Funeral plan providers will not have that option to utilise another firm’s licence as it will be their plan they will be administering. However, to become an Appointed Representative there must also be a Principal firm (a firm which has the permissions that the Appointed Representative is then allowed to use) therefore, until the FCA authorises begins authorising firms, it is unclear that any Appointed Representatives can exist and as a result, the only way to ensure continuity of service may be to seek authorisation.

Firms will be able to submit their applications for authorisation to the FCA from September 2021 and firms are encouraged to submit their applications before November 1st, 2021. Before this date, the cost of applying for authorisation is set at £10,000 for funeral plan providers and £2,500 for distributors. From the 1st of November, this increases as a delay fee to £14,000 and £3,500 respectively to encourage early applications. For firms seeking authorisation for funeral plans activity post-July 2022 and who are not yet trading the fee will return to its original price.

To apply for authorisation, firms must be prepared to submit key information to the FCA via its Connect system and provide documentation including a Regulatory Business Plan and Compliance Monitoring Plan. When an application has been submitted, firms are expected to respond to their case officers’ queries and provide further information where necessary to enable the FCA to decide whether to grant authorisation. Scott Robert can assist throughout the entire authorisation process assisting firms with their application, drafting the regulatory documents and assisting with drafting responses to FCA.

Since 2012, Scott Robert has supported firms seeking FCA authorisation, including those impacted by the most recent transition of 2019 when the FCA took over the regulation of Claims Management Companies. We can also help and support firms seeking to become an Appointed Representative.

Firms should now start to prepare for the impending rule changes and the associated regulations that come as part and parcel of the FCA’s supervision. The rule changes themselves are subject to change as the FCA intends to publish its finalised guidance in June 2021. This will provide firms enough time to prepare for the application window which opens in September.

Scott Robert Compliance Ltd will help and support all Funeral Plan providers with support and compliance guidance to be Application ready for the dates of submission.

We provide policy and implementation guidance as well as Staff training.

For immediate help and any other questions relating to your required FCA Authorisation need,

Contact Us

0161 914 5727 or email enquiries@scottrobert.co.uk

Harvey Lewis