Funeral Plan providers become FCA regulated

At Freeths we have been supporting funeral plan providers in preparing for regulation, with funeral plan providers becoming regulated by the Financial Conduct Authority from 29 July 2022.

Regulation has been looming for the sector since the government Call for Input in 2018, which arose from the demand for funeral plans growing significantly in recent years and concerns about plans not meeting consumer needs, mis-selling and poor governance and controls.

What does this mean for the regulated funeral plans sector?

FCA regulation affects those providing new funeral plans as well as those carrying out existing plans (the FCA has expectations regarding subsisting plans), as well as funeral plan intermediaries, insurance firms that sit behind insurance-backed plans, trustees and discretionary investment managers that manage trusts for trust-backed plans and trade bodies.

Although many funeral plan providers chose to be regulated by an organisation set up by the industry, the Funeral Planning Authority, FCA regulation is a step-change for the funeral plans industry, and funeral plan providers and funeral homes selling regulated funeral plans have had to invest significant time and resources in preparing for regulation. It is not, however, the case that firms can relax now they have achieved authorisation. Now firms are regulated, they will need to ensure they maintain focus on complying with their regulatory obligations on an ongoing basis. If firms do not, they should expect complaints, claims based on regulatory breaches and potentially FCA enforcement action.

It is likely the FCA will be checking funeral plan providers and intermediaries are continuing to maintain compliant processes and are complying with the FCA Principles for Business and rules. In particular, firms should continue to embed a culture that is based around the FCA Principles for Business - firms should also develop a consumer-centric approach. Funeral plan providers and intermediaries should be aware that the FCA will expect firms to monitor staff to check all staff are complying with their obligations and senior managers should also be cognisant of their personal regulatory obligations.

The FCA will also likely review the impact on regulation on the sector to ensure it achieves its objectives, which will include a well-functioning funeral plans market, competition within the funeral plans sector and a sector that delivers good outcomes for consumers.

One impact of the regulation will be increased compliance costs to firms, and it is likely these will be passed on to the consumer by way of increasing prices. As such, funeral plan prices are likely to increase in the short-term whilst the sector gets used to being regulated. However, firms will need to ensure their plans still represent fair value for customers.

Crucially, firms will also need to keep abreast of regulatory developments that apply to the sector.

What is next for funeral plan providers?

Whilst funeral plan providers and intermediaries will have been focussing on getting ready for the current regulatory framework for the sector, further regulatory developments and changes are on the horizon. Funeral plan providers and intermediaries will need to review the changing regulatory obligations and check their processes remain fit for purpose.

Consumer Duty of Care

One such change is the new Consumer Duty, which will apply across the regulated financial services industry (including to the pre-paid funeral plans sector), imposing a higher standard of care than the FCA's existing Principles 6 and 7. The FCA is expected to publish the policy statement summarising responses to its second consultation and to make any new rules by 31 July 2022.The Consumer Duty will be defined as a duty to “deliver good outcomes for retail clients”. The duty will be backed by cross-cutting rules which will require firms to act in good faith; avoid causing foreseeable harm to retail customers; and enable customers to pursue their financial objectives. The FCA has also introduced four outcomes underpinning the Consumer Duty on communications, products and services, customer service and pricing.

We have drafted a more in-depth review of the FCA's second consultation on the Consumer Duty here.

Changes to the Appointed Representative Regime

The FCA is intending to make changes to the appointed representative regime, including increased information requirements, clarification of the rules regarding oversight of appointed representatives and requiring firms to notify the FCA 60 days before the appointment.

We have noticed the FCA already indicating to funeral plan providers that they should have taken into account the FCA's appointed representative regime consultation in designing their processes for appointed representatives.

Funeral plan firms should engage with the consultation and future FCA publications and implement appropriate processes as necessary.

Complaints and claims

It is also possible some funeral plan providers and intermediaries will start facing claims and complaints regarding failures to comply with the new regulatory framework. Where breaches are significant, firms may also face regulatory enforcement action. These firms will need to be familiar with the FOS complaints processes as well as how to deal with regulatory claims and enforcement action.

How can we help

Our financial services regulation team has supported funeral plan providers in successfully achieving FCA authorisation and is now supporting clients with their ongoing compliance obligations. Our team has experience advising on the full range of issues faced by funeral plan providers, including structuring funeral plan arrangements (including both trust-backed and insurance-backed funeral plans), advising on appointed representative arrangements, drafting funeral plan terms and conditions and regulatory documentation, advising on sales processes and ensuring clients have appropriate governance systems and controls.

Our team also has experience across consumer-facing regulated sectors advising clients on FOS complaints, FCA enforcement action and litigation and would be happy to assist funeral plan providers in resolving disputes and complaints cost-effectively and in compliance with firms' regulatory obligations.

If you have any queries in relation to regulated funeral plans, please contact Adam Edwards or Daniel Meyer.