FCA Authorisation for Funeral Plans Providers: What It Means To Be Regulated By The FCA

From the end of July 2022, it will be a criminal offence for funeral plan providers to sell funeral plans unless they are authorised by the FCA.

Up until the 29th of July, funeral plan activities are exempt from regulation under the Regulated Activities Order, meaning the market is only currently subject to voluntary regulation by the Funeral Planning Authority. After this date, however, funeral plan providers and intermediaries will be brought within the regulatory remit of the FCA.

What are funeral plans and why do people use them?

  • Funeral plans allow an individual to pay for a funeral in advance at a fixed cost, which alleviates the burden for family members having to pay for a funeral.
  • The rising cost of funerals and the growing and ageing population of the UK are some of the factors that have attributed to the significant growth of funeral plans, with the FCA reporting that in 2020 160,500 new plans were sold.
  • The unregulated funeral plan market has been harmful to consumers due to high-pressure sales tactics and providers failing to deliver and pay for a funeral. However, the introduction of funeral plan regulation will undoubtedly protect consumers.

The authorisation process

Any funeral plan provider that is not authorised and wishes to enter into and administer funeral plan contracts must apply for direct FCA authorisation and any intermediary that is not authorised and wishes to sell funeral plans to customers on behalf of providers can either apply for direct FCA authorisation or become an appointed representative of a principal funeral plan provider.

Firms will need to apply for the permissions ‘entering as provider into a funeral plan contract’ and ‘carrying out a funeral plan contract as provider’. It is important to note that if firms have not submitted their application before February 2022, it is unlikely that they will be authorised by 29 July 2022 and will therefore have to stop trading until they have been authorised by the FCA.

In respect of the application to the FCA, as well as deciding which permissions to apply for firms should provide the FCA with the following (this is not limited to):

  • Evidence they meet the FCA’s Threshold Conditions
  • Provide a detailed regulatory business plan
  • Evidence financial resources required and the calculation
  • Provide an Asset Adequacy Report (for funeral plan providers)
  • Evidence and explain the compliance arrangements firms have in place

Firms that are already FCA regulated and want to carry on providing funeral plans may need to submit a variation of permission application and add one or more new regulated activities to their existing permissions or add the investment type ‘funeral plan contract’ to the scope of their existing permissions.

Firms that will not be authorised by 29 July will have to cease trading and put in place a clear plan to wind down existing funeral planning business and should transfer their contacts to a provider that will be authorised.

Ongoing requirements

Once authorised firms will have to comply with the FCA’s new rules and sourcebook, Funeral Planning Conduct of Business, (“FPCOBS”) which sets out rules and guidance specific to the sector.

The key elements of the new rules include:

Products which meet consumer needs

  • Firms must guarantee that a funeral plan will always deliver a funeral unless a customer dies within 2 years of taking out the plan, in which a full refund will be provided.
  • Firms must guarantee that customers will receive a full refund if they cancel a plan within 30 days of purchase and a further 7 days for consumers to cancel free of charge after the appointment of a funeral services provider is confirmed.

Plans must be sold fairly

  • Firms must only offer products that are consistent with consumer demands and needs.
  • Cold calling will be banned and there will be new standards on advertising.
  • Funeral plans will be brought within the scope of the financial promotion regime. Firms must ensure they communicate financial promotions in a way that is clear, fair and not misleading and also keep a record of promotions they communicate or approve.

Products must represent fair value

  • Commission payments to intermediaries will be banned.
  • Administration and cancellation fees must not be profit drivers.

Improving governance standards and oversight

  • The Senior Manager and Certification Regime will apply to authorised funeral plan firms. Firms will need to ensure that the relevant prescribed responsibilities are allocated to senior managers. All staff should be aware of their responsibilities and are trained on the Conduct Rules.
  • To ensure compliance with regulatory requirements, firms will need to review and enhance their governance and sales processes, including oversight of products, intermediaries, conflict of interest, risk management and outsourcing.
  • Providers and intermediaries will have to provide prudential information every 6 months and complaint data annually and funeral plan providers must report data on their sales activity quarterly.
  • Principal firms must ensure their appointed representative complies with the FBCOB rules.

Ensuring services can be delivered

  • All products must be backed by an appropriate trust or insurance arrangement.
  • Funeral plan providers must arrange a solvency assessment report to the produced annually by an actuary.
  • Product governance rules apply to firms. Firms will need systems and controls in place for the design, marketing, approval and management of pre-paid funeral plans, including new products.
  • Firms will be required to hold adequate financial resources to protect against future risks.

Backstops in place should things go wrong

  • Firms will need to refer complaints to the Financial Ombudsman Service (FOS) and they will be subject to complaints-handling requirements. This includes acts that took place before 29 July so long as the firm was registered with the Funeral Planning Authority at the time the issue occurred.
  • In the event a firm cannot transfer funeral plan contracts to an alternative provider, firms are required to have arrangements in place to reimburse amounts to customers in the event of insolvency.

How Complyport can help

Compliance assistance can be invaluable to a firm setting out on the road to regulation, especially against a dynamic backdrop of ever-updated expectations and requirements. (For example, at the time of writing the FCA has just implemented its revised fee structure for firms seeking authorisation.)

Additionally, achieving the goal of FCA authorisation is not the end of the story – if anything it instead marks the end of the beginning.  Once authorised, firms must continue to meet the FCA’s standards and rules and achieve good outcomes.

Complyport is a market leader in FCA authorisations and have successfully assisting in over 1000 applications. Over the last 20 years, we have provided guidance and advice on permissions required, outlined the amount of regulatory capital the new firm will need and project managed the building of the application pack.

Once a firm is successfully authorised, Complyport’s expert consultants assist firms in remaining compliant with regulation as well as advise them on how to meet and adapt for upcoming regulatory change. We are currently providing regulatory support to over 600 regulated firms on an ongoing basis globally.

Click here to learn more about Complyport’s FCA authorisation support and to book a free consultation meeting.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

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