SAIF Golden Charter

The long road to regulation

Consumer first approach

In 2012, addressing Parliament ahead of the Financial Conduct Authority (FCA) launch, then Chancellor George Osborne said that the new City regulator presented an opportunity to “reset the system of financial regulation” after the perceived regulatory failure of the banks during the 2008 financial crisis.

From its inception, the FCA’s core task has been to make financial services and markets work on behalf of consumers. In pursuit of that objective, the watchdog ensures that its 60,000 regulated firms put customers at the heart of how they do business, provide customers with appropriate products and services, and put customer protection ahead of profit.

With an eye on consumer choice, the City regulator also works to promote effective competition on service quality, price, and innovation. It checks that firms help their customers to make sense of the information they receive and can take their business elsewhere if desired.

Statutory regulation by 2022

Despite these post-crash improvements to regulation of UK financial markets and services, the regulatory exemption for funeral plan providers investing customers’ funds in trusts or whole-of-life insurance policies (a hangover from the preceding regulatory regime) remains in place. However, secondary legislation the Government presented to Parliament at the end of November will bring this 20-year exemption to an end.

Welcoming the Government’s laying of the legislation, the FCA said it expects to take responsibility for the sector in summer 2022, after 18 months of consultation and transition. This will include a consultation on the FCA’s plans for regulating funeral plans, commencing in spring 2021, with the regulator scheduled to publish the finalised regulatory rulebook for the sector before the end of the year.

A powerful regulator

As a statutory body, the FCA has additional powers to those held by the current voluntary sector regulator, the Funeral Planning Authority (FPA), although the new FPA Code of Practice has been designed to mirror much of what the FCA has done in other markets.

The financial regulator has the power to launch investigations, take disciplinary action, start criminal proceedings, make public statements, and impose penalties on firms and individuals. The FCA takes individual as well as organisational accountability seriously and requires most senior managers performing key roles at regulated firms to certify as fit to practise. Where malpractice occurs, the FCA can and does ban individuals from working in the financial services industry. This can be for non-financial as well as financial misconduct.

Under the FCA’s current plans, from summer 2022, it will be a criminal offence for any plan provider to continue trading without FCA authorisation, and the regulator has warned firms that don’t intend to seek authorisation to start planning “how to wind down business in an orderly way” before regulation comes into force.

ARs and Principles

While the funeral sector will have to wait until the regulatory watchdog consults in the spring to get a fuller sense of its proposals, the Government’s secondary legislation makes clear that the FCA will not directly regulate independent funeral directors selling third party funeral plans. Instead, FCA-authorised plan providers, known as principle firms, will name appointed representatives (ARs).

Under this model, an independent funeral director, as an AR, would be able to carry out regulated activity as an agent of Golden Charter, providing that there is a written contract between the plan provider and the independent funeral director documenting the arrangement. This written arrangement is a legal requirement, and without it, any selling activity could result in criminal proceedings.

A confident start to 2021

In March 2020, HM Treasury estimated that the initial cost of implementing regulation would reach £3.1 million. This includes a one-off cost of £1million for administering an appointed representative system. Plan providers expect the FCA to formally consult on authorisation fees during 2021.

While the profession will have to wait for the FCA to commence its formal consultation before assessing the details, after years of anticipation, the Government’s decision to lay legislation before parliament in December means the funeral profession is starting 2021 with much more certainty about its future than it had this time last year.