FCA: The future of funeral plans


As the Financial Conduct Authority (FCA) launches a period of consultation on its proposals, SAIFInsight meets Richard Sutcliffe, the FCA’s Head of Consumer and Retail Policy…

Can you tell us a bit about the Financial Conduct Authority’s (FCA) objectives and your role at the FCA?

“Our aim is to make financial services work well – for people, businesses of all sizes and the wider economy. We want to make sure that financial markets, including the pre-paid funeral plans market, are fair, honest and effective so that consumers get a fair deal.

“I’m head of the FCA’s funeral plans project, so I’ll be leading the implementation of our regulation of funeral plans. I’ve been at the FCA for about 18 years so have a lot of experience with sectors which are new to regulation. I want to make sure that funeral directors have the smoothest possible transition to regulation, bringing good results for consumers. We’ll be helping you along each step of the way.

“As well as working at the FCA, I’m also a part-time Church of England priest. In this role, I work closely with funeral directors, so have an understanding of the work you do and challenges you may be facing. This experience has been, and will continue to be, valuable in guiding my work during your transition to FCA regulation.”

As a statutory regulator, the FCA seeks to protect consumer interest in financial markets. How will the FCA do this for consumers in the pre-paid funeral plan market?

“First and foremost, our aim for this market is to achieve good outcomes for consumers. That means the funeral plans that firms offer actually meet consumers’ needs and provide fair value. We also want to make sure that firms look after consumers’ money and use it to deliver the funeral services that customers paid for.

“To make this happen, we plan to apply new standards and rules to funeral plan firms, to ensure they’re treating their customers fairly, keeping their customers’ money safe, and creating a level playing field among firms providing these services. Find out more about our approach to regulating funeral plan firms on our webpages.”

What’s the FCA’s approach to protecting vulnerable consumers?

“We want vulnerable consumers to experience outcomes that are just as good as those for other consumers, so we expect all firms to pay close attention to fair treatment of vulnerable consumers. Protecting these customers will be particularly important for firms in the funeral plans market. The very nature of the product means that customers are much more likely to be vulnerable at the point of purchase, especially via a funeral director. We’ve done research into this and a vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm.

“But all customers are at risk of becoming vulnerable, though the risk is greater in certain circumstances, such as having to take on new caring responsibilities or suffering an emotional shock. Clearly, these circumstances can be triggered by issues such as bereavement, and it’s during this time of increased vulnerability that a consumer may be looking to buy a funeral plan. We’ve produced a short video and have webpages that give more details about protecting vulnerable customers.”

The funeral profession is unusual as most Independents are small and micro businesses; what experience does the FCA have in regulating sectors where small businesses have a large presence?

“We regulate more than 60,000 financial services firms. So, while we regulate the biggest players in UK financial services, the vast majority of the firms we deal with are small. We regulate a very large number of small firms and sole traders in various sectors. For example, we regulate thousands of financial advisers. Some of these may be individuals running a micro business, while others may provide advice as part of their role in a much larger organisation. We expect firms coming into our regulation will meet our specific standards for the sector but, depending on the type of firm, we have a range of initiatives to help them understand and meet the conditions.

“We also take a proportionate approach to our ongoing supervision of firms, which is tailored to their size and complexity, and the risk of harm that they present.”

Pre-paid funeral plans are only a small part of what most funeral director businesses do, so what’s the FCA’s experience in regulating a portion of activity?

“Many firms carry out some activities which are regulated, for which they require the correct authorisation from us, as well as others which are not regulated. What is regulated and what is not is set out in legislation from the Treasury. We tend to talk about this distinction in terms of activities within the regulatory ‘perimeter’, which is the boundary, and those outside of it. We have a great deal of experience in working with firms that do activities both inside and outside of the perimeter.

“In all circumstances, it is crucial that the firm providing or advising on the products and services understands whether it is undertaking regulated activity, and that it has the correct permissions to do so. Consumer credit is an example where firms need FCA authorisation to undertake regulated activities alongside their main business. For instance, a car dealership’s main business is to sell cars, but it may need to arrange finance for its customers to buy them. The car dealer will need our authorisation to help customers get access to a car loan. We’ve been regulating this sector since 2014, when we took over the regulation of this type of activity from the Office of Fair Trading.”

In what ways can regulation be good for small and micro businesses?

“Good regulation instils consumer confidence, and gives all firms operating in the sector a level playing field. By meeting our standards and following our rules, you and your customers can be confident of fair treatment, and good value services and products. For funeral directors selling other providers’ plans, our regulation of providers will mean the plans you are selling meet our standards, as well as helping make sure providers are financially secure, effective and honest firms.”

Once statutory regulation comes into force, independent funeral directors selling third-party plans must be appointed representatives (ARs) of a principal firm or be directly authorised by the FCA. How will these work for independent funeral directors?

“Funeral directors who sell third-party plans can either apply to the FCA to be directly authorised or become an appointed representative (AR) of an appropriately authorised firm (principal), which would typically be a plan provider. We expect that most funeral directors selling third-party plans will tend to take the AR route. If funeral directors want to continue arranging pre-paid funeral plans as an AR, a principal firm will need to register them with us. We recommend that funeral directors speak with a principal, or principals (as they can be registered with more than one principal) as soon as possible.

“We expect that funeral directors will probably want to maintain continuity and speak with those firms with which they have already forged existing links. If the principal agrees to appoint a funeral director as an AR, then the principal will become responsible for the AR’s conduct within the FCA’s rules and regulatory standards. The principal won’t be responsible for the business more generally, just for the pre-paid funeral plan activities which we’re regulating. Some individuals within your firm may need to be approved by us as part of becoming an AR firm. Find out more about appointed representatives and principals here.”

Can you explain how the introducer appointed representatives (IAR) model of regulation will work for independent funeral directors?

“An introducer appointed representative (IAR) is similar to an appointed representative (AR) in that they act for a principal firm. However, they can only make introductions and distribute non-real time adverts (e.g. leaflets) to customers. So a funeral director that becomes an IAR could introduce a customer that wants to take out a pre-paid funeral plan by passing on their contact details to the provider or handing out a provider’s leaflet to the customer.

“These sorts of IAR arrangement exist in a number of different sectors. A typical example is in the motor vehicle sector where car dealers introduce customers to finance or insurance.”

What can the funeral profession learn from those that currently use the AR/Principal model?

“The AR regime allows ‘exempt persons’ to carry on certain regulated activities under the umbrella of a principal firm which does have permission for those activities. For certain types of firm, becoming an appointed representative (AR) of a principal firm may be an appropriate alternative to seeking authorisation. ARs exist in other sectors, such as the general insurance and investment managements sectors. Our thematic reviews in these sectors have underlined the need for principal firms to have a sound understanding of their regulatory obligations and take full responsibility for the conduct of their ARs.

“Our reviews also show the importance of (1) principal firms having well-defined processes and procedures for ARs to follow and (2) having effective monitoring and supervision over ARs to ensure compliance with our rules.”

What should plan providers and independent funeral directors that hope to continue selling third-party plans as ARs be doing now to prepare for statutory regulation commencing in summer 2022?

“All firms in the pre-paid funeral plans market need to be preparing for FCA regulation. While summer 2022 might seem a way off, the authorisation gateway opens in September 2021, so you need to be getting your firms ready for regulation now. You can find out what you need to do now on our web pages. Make sure you sign up for email updates so that you don’t miss anything.”

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