FCA Publishes New Funeral Plan Rules
The FCA has published final and near-final rules on pre-paid funeral plans, which will come under their regulation on 29 July 2022. The FCA say their rules are designed to protect customers in the event that their plan provider fails. As such, the rules cover requirements for the structure of funeral plan providers’ trust and insurance arrangements, access to the Financial Services Compensation Scheme (FSCS) and resolution of funeral plan firms.
Currently, the planned rules are still subject to the UK Government’s proposed funeral plan legislation.
An increase in demand for funeral plans in recent years had fuelled concerns around the potential for consumer harm. Previously, funeral plans were controlled on a voluntary basis by the Funeral Planning Authority and were exempt from FCA regulation. FCA rules are designed to ensure that the potential harms that were identified, including plans not meeting customer needs, the use of high-pressure sales tactics, and poor oversight of third parties.
The publication of the proposed final rules includes some additional guidance and clarification on elements that were flagged as uncertain within the responses to the initial consultation. One of the major concerns was around the definition of the term ‘good outcomes’ where firms will be required to have in place arrangements that ensure good outcomes for consumers in the event the firm fails. The FCA has clarified that although they don’t intend to define this term further – and firms will need to use their own judgement – that they would consider the best outcome in the event of firm failure is the transfer of their plan to a new provider, on the same terms, e.g. choice of funeral director. If no provider can be found using the same terms, then the customer can be asked to consent to a change in contract terms.
Funeral plan providers should be aware that the FCA has already published some final rules aimed at consumer protection, including banning cold calling, setting standards on advertising to ensure plans are sold fairly, banning commission payments to intermediaries, and the requirement of a guarantee that funeral plans will always deliver a funeral unless the customer dies within 2 years of taking out the plan – and then a full refund should be offered.
Funeral plan providers must apply to the FCA for authorisation if they intend to continue providing pre-paid funeral plans after 29 July 2022. Firms that are not authorised by this date must cease selling funeral plans. Any existing business should be transferred to an authorised provider before that date, or alternatively, firms can wind down the business. Firms wishing to carry on business must apply for one or both of the new types of permission; entering as a provider into a funeral plan contract or carrying out a funeral plan contract as a provider.
Once authorised, firms must abide by the FCA’s rules. Authorisation decisions will be determined by the ability of the firm to meet the FCA’s requirements within SYSC, the threshold conditions, and the new requirements, as set out within the proposed final rules. Firms organising their applications should bear in mind the bans on cold calling, any plan that does not guarantee a funeral after two years, and commission payments to intermediaries. Providers cannot include any terms in the contract that would limit liability – including via the FSCS – and there will be new standards on advertising.
The window for application is now open and firms shouldn’t leave this until last minute, which carries the risk of having to pause operations. Funeral plan providers must apply for direct FCA authorisation. Intermediaries can either apply for direct authorisation or become an appointed representative of an authorised firm. Authorisation can take some time – at least six months, and potentially longer if the application is incomplete or the FCA need to follow up or request additional information. The dedicated funeral plan application page provides a range of guides on the authorisation form, variation of permission form and the supplement form. Firms applying for authorisation should be prepared to be able to evidence that the firm is ready and organised, that products, processes, systems and people are in place to meet regulatory standards for the funeral plans sector. Firms must also be able to show how, at the point of authorisation, they are able to satisfy, and continue to satisfy, the FCA’s Threshold Conditions (https://www.handbook.fca.org.uk/handbook/COND/1/1A.html), the Principles for Businesses, and that the firm’s management meets the FIT test.
We offer an FCA Advice and Application Support service, offering guidance, support and creation of documents and procedures to assist firms pass through the authorisation process quickly. Further information can be found on our website on the Services page. To contact us to discuss, contact Rob Bell at email@example.com.