Regulating the funeral plans sector

The FCA Implements New Regulations on The Funeral Plan Sector

On July 29th 2022, the Financial Conduct Authority (FCA) brought the funeral plan sector within its scope of regulation. This means that businesses providing funeral plans will now be expected to meet and adhere to industry standards as outlined by the FCA. Until now, funeral providers were exempt from regulation under the Regulated Activities Order (RAO) and were only voluntarily held accountable to the industry established Funeral Planning Association.

The implementations of these regulations comes after a consumer investigation revealed misconduct across the industry and is intended to standardise provider practices and protect consumer interest.

Why is there a need for regulation?

In the last five years, the funeral plan sector has seen a twenty percent growth in business. Historically, funeral providers offer pre-pay options that allow customers to pay for their funerals upfront in order to protect themselves from rising costs and inflation. The pre-paid funeral market generally uses intermediaries who receive commission to solicit sales from customers. This practice raised concerns regarding the ethical conduct of intermediaries and providers alike resulting in the need for regulation.

In April 2021, a Treasury consultation conducted by the FCA noted a range of harms arising from the activity which, as the funeral sector continues to grow, deemed the regulations imperative to protecting customers. As the funeral sector continues to grow, the FCA has deemed the regulations imperative to protecting consumers.

What is the goal of funeral regulation?

The goal of funeral plan regulation is to help standardise provider practices in order to protect consumer interests. The new legislation intends to protect customers who have taken, or will in future take out, a pre-paid funeral plan product. A focus on providing better value products for consumers is central to the changes; alongside better sales practices and controls so consumers have confidence in receiving the funeral expected.

What are the regulations?

The FCA has outlined six umbrella guidelines that serve to inform multiple more specific regulations. With the implementation of these regulations, the FCA has set the expectation that:

  • Products must meet consumer needs: from here on out, products that do not provide for funeral services in almost all circumstances are banned.
  • Plans must be sold fairly: Cold calling is now prohibited and new standards in advertising pre-sale disclosure have been established. Additionally, firms will only be authorised to sell products that meet consumers demands.
  • Products must represent fair value: Intermediaries and commission payments are, henceforth, banned and administration and cancellation fees must not profit drivers.
  • Ensuring services can be delivered: All products must be backed by proper trust or appropriate insurance, and firms must ensure that there are no terms in the agreement that could limit liability.
  • Backstops should be in place should things go wrong: Firms must have arrangements in place to reimburse or transfer contracts in the event that a firm goes under or, for some other reason, cannot provide promised services.
  • Improvement of governance standards and oversight: Senior Managers and Certification Regimes will now ensure system regulation, conflict control, and risk management.

Who is affected by these regulations?

The scope of regulation outlined by the FCA is meant to encompass the pre-paid funeral industry in its totality, including its customers. Those who need to be aware of the new regulation standards are:

  • Firms that sell and carry funeral plans in the UK
  • Investors that provide advice on funeral contracts
  • Life insurance providers that back specific funeral plans
  • Trade bodies that represent aforementioned firms
  • Representatives of customers interests
  • Customers who hold, or are planning on holding, a pre-paid funeral plan

What does this mean for the sector?

Funeral providers who wish to continue conducting regulated funeral plan activities must apply for authorisation. This also applies to any intermediaries selling funeral plans who do not become ARs of authorised firms. Furthermore, firms who only desire to administer pre-existing plans must also be authorised.  At the end of July the FCA authorised 26 providers who together hold approx. 1.6m plans (87% of the market).

All firms involved will need to make adjustment to their marketing and contract practices. Should they not adhere to the new FCA standards, they will be required to dissolve or make the proper adjustments before they are able to continue practicing.  

For application approval, the FCA is requiring: a basic threshold of conditions to be met, detailed business and financial plans, adequate client onboarding policies and practices, and a detailed report of how businesses will comply with new requirements.

Since the announcement and, furthermore, the implementation of these restrictions, the UK has already seen a decrease in the volume of firms in the market. Some businesses see the cost of compliance as unachievable, but there is help in the form of technology solutions.  For decades authorised firms have been responsible for the governance, training, efficacy and oversight of their salespeople and appointed representatives.  RegTech solutions are designed to make these activities achievable and affordable. Ultimately, the FCA is hopeful that the new regulations offer more support and standardisation to business owners and greater consumer protections. Robust, digital oversight will help to achieve this without unnecessarily squeezing firms out of the market.

Victoria Slade
Victoria Slade
Victoria Slade is our Head of Sales at REG Technologies. Victoria helps insurance businesses adopt RegTech solutions, to manage existing and emerging regulatory and legal risks efficiently.
Connect on LinkedIn and find out more about how REG can help you, or call 0203 946 2885.

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