On the 5th of July 2021, the FCA published a 309-page policy statement containing the final rules to be followed by all funeral plan firms and providers across the country.
These rules - which won’t come into effect until July 2022 - come as a response to concerns highlighted by the 2020 CMA Funerals Market Investigation report about how some funeral plan providers were operating.
The statement released by the FCA has the aim to regulate advice on funeral plans (which are considered an investment and fall within the FCA’s “investment advice” area of responsibility). The new funeral regulations include a ban on commission payments and high-pressure sale strategies.
Below, we’ll look at what funeral plan firms and directors should know to prepare for the upcoming industry changes.
What Is the FCA?
The UK Financial Conduct Authority (FCA) is the United Kingdom’s financial regulatory body. The FCA operates independently from the government and is financed through the fees paid by the financial sector’s members. The mission of the FCA is to create honest and effective financial markets for consumers, individuals, businesses, and the whole economy.
The FCA currently regulates the conduct of around 51,000 businesses, is the prudential supervisor of 49,000 companies, and sets standards for 18,000 firms. These firms are of different nature and include building societies, insurance companies, investment firms, and credit unions.
By setting high standards, implementing security measures, and safeguarding the wellbeing of businesses and consumers alike, the FCA regulatory body aims to:
- protect consumers
- protect financial markets
- promote competition
Why Is the FCA Regulating the Funeral Industry?
Funeral plans are one of the most significant investments made by individuals. And, often, it is an investment made under a great deal of pressure - not always following well-thought-out decision-making, and often vulnerable to the influence of external factors.
Due totheir financial nature, funeral plans fall within the FCA’s “investment advice” area of expertise. And, in turn, funeral plan firms and providers are considered “investment advisors”, which need to be regulated by the FCA.
This is to ensure that the funeral firm:
- Creates products that meet the consumer’s expectations and needs
- Provides funeral plans that hold fair value
- Uses the consumer’s money for the established funeral services
As highlighted by Sheldon Mills, FCA Consumers and Competition Executive Director, the new funeral rules aim to protect consumers, drive up the industry's standards, and ban unethical sale strategies. The Executive Director also warns that ‘Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.’
What Is the New Funeral Regulation?
The new funeral regulation specifically affects:
- Funeral plan providers
- Funeral plan contracts investment advisers
- Funeral services insurance firms
- The managers and trustees of funeral plans
- Funeral plan contracts trade bodies
In the PS21/8 Regulation of funeral plans: Feedback to CP21/4 and final rules you can find all the new rules on funerals as published by the FCA. Here is an overview:
- Funeral products not meeting the needs and expectations of customers are to be banned (including those that don’t ensure funeral services in all circumstances)
- New standards of advertisement will be introduced and cold calling is to be banned.
- Ban on all commission payments to intermediaries to ensure the value of the products sold.
- Checks to ensure the fitness to operate of those selling funeral products.
- Plans are to be sold fairly and present fair value
- Requirement for firms to have a risk management plan in place to ensure the continuity of services.
Carrying out funeral plan activity after this has begun to be regulated by the FCA and without authorisation can be a criminal offence.
How Does It Affect Funeral Directors?
As we have seen above, the funeral plans’ regulations affect:
- Providers of funeral plan contracts
- Intermediaries that sell funeral plans
Funeral directors, alongside will writers and lead generators, belong to this second category. Therefore, if they wish to continue undertaking FCA-regulated funeral plan activities, they will need to formally apply for authorisation and become a firm’s ARs (appointed representatives).
Preparing for authorisation should happen immediately, as unregulated funeral plans sold while the funeral industry is regulated by the FCA can be considered a criminal offence. If your authorisation is refused or withdrawn, you will need to stop carrying out FCA-regulated activities.
What You Need To Do To Prepare
While the FCA published the statement containing the final rules in July 2021, these regulations won’t come into effect until the 29th of July 2022. Nonetheless, firms and intermediaries should, by then, have reviewed the funeral products sold and received a suitable FCA authorisation.
Additionally, the application fee will increase by 40% after the 1st of November 2021. Therefore, you might want to gather your documents and file your application as soon as possible.
Here is what you can do now:
- Apply for your authorisation - you can do so here
- Make sure you have reviewed the FCA Policy Statement and Consultation Paper
- Ensure you have reviewed the FCA’s future proposals, including the resolution of firms, FSCS protection, and structural provisions.
- You will receive an FCA Handbook in 2022 - but you can review the new funeral rules here.
- Receive your authorisation by 29 July 2022 to continue trading
- Once authorised, you will need to pay annual fees, based on turnover
If you decide not to apply for an authorisation, you must make plans to wind down your funeral business.
What Dates To Look Out For?
While the FCA has already published the new set of funeral rules, the regulatory body will give over 12 months of time to firms and intermediaries to prepare for the new regulatory regime.
Some dates that you should keep in mind include:
- July 2021 - the new funeral regulations are published
- September 2021 - applications for authorisation are now open
- 1 November 2021 - the getaway will open and the application fee might see an increase of up to 40%.
- 29 July 2022 - all firms and intermediaries wishing to continue trading should have their FCA authorisation to do so.
Once in place, the regime will be reviewed and analysed to ensure that it is leading to good outcomes.
Where To Get More Info? Find Tailored Advice
Above we have seen an overview of the new FCA funeral plans and changes to the funeral industry. To prepare for it, you can find more information on the FCA website, on the following pages:
- To review the new rules: PS21/8: Regulation of funeral plans: Feedback to CP21/4 and final rules
- To understand the new changes: Regulating the funeral plans sector | FCA
- To review the reasons behind the new regulations: FCA confirms measures to raise standards in the funeral plans market | FCA
- To apply for authorisation: FCA Authorisation Summary | FCA
- To learn more about the FCA authorisation process: Our authorisation process | FCA
You can also gain important insights into today’s funeral plan market in the CMA Funerals Market Investigation Final report. Make sure to find expert and tailored advice to ensure that your funeral services firm can continue to operate.