From 29 July 2022, the Financial Conduct Authority (FCA) will regulate funeral plan providers, following a change in the law.
Ahead of that, the FCA is assessing applications from funeral plan providers for authorisation. This process is to ensure:
- firms sell products which offer fair value, meet consumer needs and are sold fairly
- firms are well run, adhere to high conduct standards and have sufficient resources and risk transfer arrangements so they can deliver funeral services
- consumers have time and all the information they need to make better informed decisions when choosing between different products and whether a funeral plan is right for them at all
We will not authorise firms that cannot demonstrate they meet these standards. This process is designed so only well-run funeral plan providers able to provide a valuable service to their customers can continue to operate. We warned firms to plan for the new regulatory regime or prepare to leave the market in an orderly manner.
A number of risks arising from the practices of some firms in the market have been identified by the FCA and by HM Treasury, which legislated to bring funeral plan providers under regulation. These include:
- Plans that do not meet consumers’ needs or expectations, for example those paid by instalment that do not guarantee a funeral service.
- The use of high-pressure sales tactics by some intermediaries, including cold calling of potentially vulnerable consumers, resulting in consumers taking out plans unsuitable for their needs.
- Consumers paying high prices relative to product benefits, driven by high rates of commission and fees.
- Poor governance and controls within plan providers, including oversight of intermediaries and potential conflicts of interest where an intermediary gets a high commission.
- Plans going unclaimed because the consumers’ families do not know about them, which increases the risk of harm as families cannot use plans they discover at a later date.
- Poor financial management of trusts, meaning that there may not be sufficient funds available to cover funeral costs, with unclear and potentially poor outcomes for consumers if firms fail.
In addition to assessing firms for authorisation, the FCA is imposing new rules to make sure consumers are properly protected, including banning cold calling and all commission payments to intermediaries to make sure products offer fair value.
Until funeral plan providers are regulated by the FCA, 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 go out of business.