On 11 March 2020, HM Treasury published the response to its consultation paper on the regulation of pre-paid funeral plans. The consultation had originally been launched in 2018 following concerns about consumer detriment in the pre-paid funeral plan market. Currently, entering into a funeral plan contract as a provider is a regulated activity under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). However, exclusions are available if the plans are insurance or trust-backed and meet certain conditions. All known providers meet these conditions and as a result the Financial Conduct Authority (FCA) has, to date, not authorised any firm for the purpose of entering into funeral plan contracts.
Funeral plan providers can, if they choose, seek registration with the Funeral Planning Authority (FPA), the self-regulatory body for the sector, which imposes its own standards of market conduct. The consultation paper had sought views on bringing providers within the remit of the FCA, thereby firming up the regulation within the sector.
The majority of those who responded to the consultation agreed that the government proposed statutory instrument accurately captured the two activities which should be subject to FCA regulation, namely: (i) entering into funeral plan contracts; and (ii) the carrying out of funeral plan contracts. Under the proposals, the current exclusions for insurance and trust backed plans will no longer apply and accordingly providers will require FCA authorisation to administer both new and existing plans. Although plans provided by local authorities and certain designated professional bodies will remain out of scope.
In response to concerns that some providers may be unable to secure FCA authorisation and would consequently be forced to sell existing plans, HM Treasury confirmed that these firms would have the option to apply for authorisation solely in relation to “carrying out” (or administering) such plans. These firms would still be expected to meet the FCA’s Threshold Conditions but obtaining this permission would allow them more time to either meet the threshold requirement for selling new plans, transfer existing plans or run down their business book.
HM Treasury believes that commercial incentives are there for regulated providers to take on the contracts of providers exiting the market, including the potential of obtaining increased market share and the desire to minimise reputational damage associated with existing policyholders being left without a regulated provider. Accordingly the government does not feel that the increased regulatory burden will lead to a dearth of providers in the market.
Under the consultation the government is also proposing to allow intermediaries to become appointed representatives. This means that principal firms will take responsibility for the conduct of any intermediaries they appoint to sell, market or promote funeral plans, while ensuring that the sales of such plans are subject to the same conduct requirements. Although HM Treasury emphasised that lead generation (third party websites which provide contact details of potential customers to funeral plan providers) is likely to be caught within article 25(2) (Making Arrangements) of the RAO.
Following consideration of the final responses to the consultation, HM Treasury also extended the jurisdiction of the Financial Ombudsman Service so it can deal with complaints relating to funeral plan providers previously regulated by the FPA.
The government is expected to lay secondary legislation before Parliament shortly to amend the regulatory framework for funeral plan providers, with that legislation expected to come fully into force 18 months after it is passed. Within this period the FCA will design, consult on and implement the relevant architecture for the new regulatory regime, including the undertaking of a cost-benefit analysis of the proposed new rules.
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