SAIF Golden Charter

Funeral plans: the journey into regulation

This article, written and supplied by the Financial Conduct Authority (FCA), has been split into two parts. Part one reflects on the first few months of regulations and transition period.

It has been a momentous year for the pre-paid funeral plan sector. Since the start of FCA regulation on 29 July 2022, customers of authorised firms have benefited from greater protection and have been getting used to operating in the new regime.

Raising standards to stop harm from occurring

Our regulation brought in new rules to protect customers and raised standards of conduct in the sector. We have banned commission payments and firms must ensure pre-paid plans offer fair value to customers. Firms providing funeral plans can no longer cold call customers, and there must also be protections in place to ensure fair treatment of consumers, many of whom are likely to be vulnerable.

Enhanced staff training requirements ensure consumers are dealt with more professionally and are given all the information required to make an informed decision when making a product choice based on their demands, needs and objectives.

We authorised 26 funeral plan providers – representing 87% of the market – and one intermediary from 29 July, after they satisfied us that they could meet our high standards. Regulated firms held approximately 1.6 million plans at that time.

Not all firms met or decided to meet our new standards

Some firms were refused or withdrew their applications for authorisation and, unfortunately, a few of these firms became insolvent, including Safe Hands. Although some customers have been offered replacement plans by authorised firms at a discount, many consumers have experienced uncertainty and being left out of pocket as a result of the historic poor practices of these firms.

Several smaller independents chose not to apply for authorisation, instead transferring their existing plans to other regulated firms. Many of them became Appointed Representatives (ARs) or Introducer Appointed Representatives (IARs) of authorised funeral plan providers and can conduct certain regulated activities under the oversight of these providers without being directly regulated.

The authorised firm – ‘the principal’ – is responsible for making sure that the AR is fit and proper and complies with our rules. ARs must ensure that they act within the scope of their appointment, understand and comply with our rules, including any requirements set by the principal.

A funeral director, who may be an Approved Person in this case, must take reasonable steps to ensure the AR for which they are responsible complies with regulatory requirements.

IARs are appointed representatives who can only undertake limited activities on behalf of the principal. These activities are making introductions and distributing financial promotions. It is critical that IARs have a clear understanding of the limitations to their activity.

Transition period

Although we refused some applications that didn’t meet our standards and some firms withdrew their applications, the legislation gave these firms until 31 October 2022, without being authorised, to provide existing customers with refunds or transfer their books to another, authorised provider.

These firms have now transferred their plans to authorised providers, or are refunding customers that didn’t want a transfer.

Protecting customers from firm failure

For authorised firms, the Financial Services Compensation Scheme (FSCS) protects consumers if their funeral plan provider fails. If the firm is insolvent, the FSCS, (working with an Insolvency Practitioner) would step in quickly, either to provide customers the option of a replacement funeral plan or compensation.

If the affected customer had already passed away, the FSCS may help with the provision of a funeral. To ensure this could happen at very short notice, our rules require all firms to have a wind-down plan, and a single customer record, in place, to ensure the FSCS can make alternative arrangements as seamlessly as possible.

Part 2 of this article from the Financial Conduct Authority can be found here, and includes the complaints scheme, consumer duty and what the FCA are seeing.