FCA consults on guidance for the funeral plans sector

Nov 22, 2021 12:00:00 AM

What has happened?

The FCA had consulted on its draft rules and guidance for the funeral plans sector and proposed standards that firms will need to meet when the sector moves into FCA regulation in its March 2021 consultation paper, CP 21/4,. From 29 July 2022, activities involving the provision and distribution of pre-paid funeral plans will come under FCA regulation and firms conducting these activities will need to be authorised.

What do you need to do?

The proposed rules are intended to protect consumers that have or are considering a pre-paid funeral plan product, since the FCA wants to see an improvement in outcomes for consumers in this sector, with better value products, better sales practices, and better controls in place. All firms wishing to carry on this business after 29 July 2022 will need to meet the same standards.

The FCA’s proposals are intended to ensure that:

products meet the individual needs of consumers – there will be a ban on the sale of products that do not provide for funeral services in almost all circumstances on the individual’s death,
plans are sold fairly, including a ban on cold calling to prevent consumers from being pushed into taking out plans which may not be right for them,
plans are fairly valued, with firms stopped from using additional fees to drive profits and a ban placed on commission payments to intermediaries, and
consumers have access to the Financial Services Compensation Scheme and Financial Ombudsman Service from day one.

This consultation was intended to be of interest to firms that sell or carry out funeral plan contracts for funerals in the UK, investment advisers that provide advice on funeral plan contracts, insurance firms that provide life insurance policies that back some funeral plans, and trustees of trusts and discretionary investment managers which manage the assets of trusts that back some funeral plans.

All firms in this sector need to consider how FCA regulation may impact their business and to make the necessary preparations. The FCA has provided a range of help and guidance to assist firms in preparing applications and getting ready to be regulated by the FCA. They need to:

apply directly to the FCA for authorisation or, if appropriate, submit notification to become an Appointed Representative,
ensure they meet the standards to be authorised and, once authorised, follow the FCA’s rules, and
pay an application fee and then annual fees, based on turnover

Those funeral plan providers that cannot meet the FCA’s standards and those which are not authorised before 29 July 2022 are expected to cease trading in relation to funeral plans in an orderly way. This should take place before FCA regulation takes effect, as carrying on regulated business without authorisation after rules take effect is a criminal offence. The FCA anticipates that the Funeral Planning Authority will continue to regulate providers of prepaid funeral plans registered with it until FCA regulation begins in July 2022.

The consultation has closed. The FCA published feedback on the responses and issued Policy Statement PS 21/8, with near-final rules after reviewing the comments received.

The Treasury is bringing about legislative changes for funeral plans to ensure that the Financial Services Compensation Service will be effective for consumers when it covers funeral plans. The FCA consulted on this in July 2021 via CP 21/20 and issued near-final rules, via its Policy Statement 21/15, in November 2021. FSCS coverage was confirmed in November 2021, subject to the Treasury legislation, and the FCA intends to finalise the rules and for them to come into force on 29 July 2022.

The consultation outcome was published in April 2022. It also sets out additional provisions that will:

place an additional statutory duty of co-operation on insolvency practitioners, and
make it easier for funeral plan providers seeking to exit the market to transfer their existing funeral plan contracts to another funeral plan provider for regulatory purposes

Also noteworthy is the fact that the Government intends to make an amendment to the commencement provisions/article 1(3) of The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021 to allow some providers a longer transition period, in limited circumstances, until 31 October 2022 for the regulated activity of carrying out funeral plan contracts as provider. This will give these firms more time to achieve authorisation, wind down their business or find an authorised provider to take on their funeral plans. The extension to the transition period will only be for the regulated activity of “carrying out a funeral plan contract as provider” (article 59(1A) of the RAO), which means that providers will be able to deliver existing funeral plans but will not be permitted to enter into new funeral plan contracts.

The only providers that will be able to enter the extended transition period are those that are carrying out funeral plans entered into before 29 July 2022, that applied for FCA authorisation before 1 March 2022, but have not obtained authorisation. This will be where the provider is in one of the following situations:

Its application has not been determined by the FCA before 29 July 2022,
It withdrew its application before 29 July 2022 and has not reapplied, or
Its application was refused by the FCA before 29 July 2022 and it has not reapplied.

How can we help you?

If you’d like to know more about how we can help you with your funeral plan sales or advice arrangements, FCA regulation or any other regulatory compliance issues, our expert team is here to help.

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