To enhance consumer protection in the funeral plans market, the FCA has confirmed the rules funeral plan providers will have to follow when they come under regulation from 29 July 2022.
The new rules will introduce high standards in the funeral plans market and require firms to ensure that plans are sold fairly, perform as expected and provide value for money.
These rules mean:
- funeral instalment plan products will always deliver a funeral (after a moratorium period) as we will be banning those that don’t guarantee this
- cold calling will be banned and new standards on advertising will be implemented to ensure plans are sold fairly
- commission payments to intermediaries will be banned to ensure products represent fair value
- those selling funeral plans are subject to full checks on their fitness to operate to improve governance standards and oversight
Sheldon Mills, Executive Director, Consumers and Competition at the FCA commented on the new rules: ‘Funeral plans should provide customers with comfort and certainty that their affairs are in order.
Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations. We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it.
As we take over the regulation for this market, we will be rigorously assessing firm’s fitness to operate. Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.’
Information for consumers
Consumers should be aware that under Government legislation, funeral plan providers will not come under regulation until 29 July 2022. This will mean consumers will not be able to make a complaint to the Financial Ombudsman Service, nor will they have protection from the Financial Services Compensation Scheme (FSCS) should their provider fail before 29 July 2022. Consumers should be alert to any cold calls they receive about funeral plans before the ban comes into effect. High-pressure sales tactics such as cold calling can result in consumers taking out products which are not suitable for their needs.
Consumers thinking of purchasing a pre-paid funeral plan before regulation should look into their options carefully to decide whether it’s the right product for them. Consumers should be sure they understand what their plan does and doesn’t provide before they pay, and whether there are extra charges applicable.
Firms should prepare for authorisation now
Firms that want to continue conducting funeral plan activities after regulation should prepare now so that they can apply for authorisation as soon as possible after the application gateway opens in September 2021. For applications made after November 2021, the application fee will increase by 40%.
Providers which are not authorised
Any firms that are not authorised or do not become Appointed Representatives by 29 July 2022 will have to cease trading in relation to funeral plans before FCA regulation takes effect. From 29 July it will be a criminal offence for plan providers to carry out funeral plan contracts without authorisation.
If a provider knows it will not apply for authorisation, withdraws its application, or has its application refused, it should stop selling new funeral plans from that point in time. Providers in this position must, before 29 July 2022, transfer their existing books of business or wind down in an orderly way. It is unacceptable and may be unlawful for plan providers to sell new plans which they will not be able to deliver once regulation starts as they will not be authorised to do so.
Further consultation on firm failure rules
Following feedback received from the March consultation and the launch of a government consultation on proposed legislation in relation to funeral plans and the FSCS, the FCA is now consulting on the outcomes for consumers in the event of firm failure.
The proposed rules aim to minimise harm to customers if a regulated funeral plan provider fails by ensuring that contracts can be transferred to new providers where possible, and that the FSCS can arrange continuity of funeral plan contracts or pay appropriate compensation if a firm is not able to meet its liabilities.
The proposals also aim to mitigate any undue impact on FSCS levy payers by providing the FSCS with additional powers to help it to recover its costs from failed firms.
The FCA is asking for feedback on the draft rules by 31 August 2021.
The FCA will be holding funeral plan firms to high standards when they apply. Once firms are regulated, the FCA will ensure firms maintain these standards through ongoing supervision.
The FCA will evaluate the new regulatory regime after the industry has had time to adapt to these changes. The evaluation will also examine the experience of consumers to determine whether the regime is delivering good outcomes.
Notes to editors
Find out more about Unfair contract terms
The FCA will regulate the funeral plans sector from 29 July 2022 under terms of legislation introduced by government. Firms are currently regulated on a voluntary basis by the industry-established Funeral Planning Authority (FPA). The FCA anticipates that the Funeral Planning Authority will continue as the voluntary industry body responsible for the conduct of prepaid funeral plan providers registered with them, until FCA regulation begins on 29 July 2022.
Funeral plans are products through which a consumer pre-arranges and pre-pays for their funeral with a provider, generally for a fixed cost. The funeral plan could be sold by a third-party intermediary (eg funeral director, financial advisor or will writer) or directly by the provider firm. Where these plans are then backed by an insurance product, or a trust meeting specific conditions set out in the Regulated Activities Order (RAO) they currently benefit from an exemption to regulation.
The cold calling ban will operate in the same way as the FCA’s mortgages cold calling ban: unless a firm does not have an existing relationship with a customer and the customer would not expect to receive a call from them as part of this relationship, the firm cannot call them.
Funerals provided through instalment plans must be guaranteed, unless the customer dies within 24 months of the plan purchase. In this case the plan provider should give a refund. The 24-month period reflects the length of the moratorium periods generally available in the over 50s life insurance sector.
Our confirmed fees for firms seeking authorisation will be published in the July 2021 Handbook notice.
- Find out more information about the FCA.