20th June 2022
On 29 July 2022 the Financial Conduct Authority will start regulating providers and intermediaries in the pre-paid funeral plans sector. The change affects: firms that sell or carry out funeral plan contracts for funerals in the UK; investment advisers who provide advice on funeral plan contracts; insurance firms that provide life insurance policies backing some funeral plans; trustees of trusts and discretionary investment managers who manage the assets of trusts that back some funeral plans; and insolvency practitioners.
Providers (firms that enter into and administer funeral plan contracts, including those sold before FCA regulation) and intermediaries (firms that sell funeral plans to customers on behalf of providers) have been required to apply for direct authorisation or become an appointed representative of a principal firm prior to the onset of regulation.
Continuing without authorisation from 29 July onwards will be a criminal offence. On 17 July, the FCA published a list of the providers it intends to authorise, together holding approximately 87% of existing customer plans.
The FCA is also imposing new rules on the sector to make sure consumers are properly protected, including banning cold calling and all commission payments to intermediaries to make sure products offer fair value, and high standards of governance and financial resilience.
There are further rules aimed at protecting customers if their regulated funeral plan provider fails. They cover resolution of funeral plan firms, requirements for the structure of funeral plan providers’ trust and insurance arrangements, and access to the Financial Services Compensation Scheme. There are also obligations for firms to notify customers and nominated representatives following a transfer of funeral plan contracts.
The FCA is also consulting until 27 June on amendments to the Compensation rules relating to the FSCS in relation to funeral plans and to the Funeral Plan: Conduct of Business sourcebook. Among other things, this follows on from the government’s announcement that it will place an additional statutory duty of co-operation on insolvency practitioners requiring them to co-operate with the FSCS if a regulated funeral plan provider fails.
The FCA and HM Treasury identified a number of risks arising from the practices of some firms in the sector, resulting in HM Treasury legislating to bring pre-paid funeral plans into regulation. They include: plans not meeting consumers’ needs or expectations; high-pressure sales tactics by some intermediaries; high prices relative to product benefits; poor governance and controls; plans going unclaimed; and poor financial management of trusts.
The FCA says it wants to see an improvement in outcomes for consumers, with better value products, better sales practices and better controls in place so consumers can be confident they will receive the funeral they expect. Here are the key elements of the new rules:
Please get in touch with Jeanette or your usual WM contact if you need more details or have queries arising from any of the points covered in this briefing, or require advice or assistance with any regulatory or compliance issue.