The Financial Conduct Authority (FCA) has laid out plans to better protect consumers within the funeral plans market.
These rules, which will come into effect from 29 July 2022, will introduce higher standards in the market and will require firms to make sure plans are sold fairly.
Under the incoming rules, the FCA will be banning funeral instalment plan products that do not guarantee a funeral. It will ban cold calling and will implement new standards on advertising, as well as banning commission payments to intermediaries to ensure products represent fair value.
The FCA will also make sure that those selling funeral plans are subject to a full check on their fitness to operate in a bid improve governance standards and oversight.
The financial watchdog warned firms that wish to continue conducting funeral plan activities after regulation should begin to prepare now. The application gateway opens in September later this year and, for those made after November 2021, the fee will increase by 40%.
Firms that are not authorised or do not become appointed representatives by July 2022 must cease trading in relation to funeral plans. From this date, it will be a criminal offence for plan providers to do so without authorisation, the FCA said.
The regulator also said it was consulting on the outcomes for consumers in the event of firm failure. The proposed rules aim to minimise harm if a regulated provider fails and ensure contracts can be transferred to new providers where possible.
It said the proposals would also enable the Financial Services Compensation Scheme (FSCS) to take appropriate measures to ensure continuity of cover.
They would also allow the regulator to make rules giving the FSCS the power it needs to impose levies on the sector for the purpose of meeting expenses incurred in arranging continuity of cover for or making payments to consumers of failed funeral plan providers.
However, if a provider fails before 29 July next year, consumers who wish to make a complaint to the Financial Ombudsman Services will not be covered until after that date. The FCA asked for feedback on these rules by 31 August 2021.
In March, the financial watchdog asked for adviser thoughts on pre-paid funeral plans. The FCA sent out the consultation after the Treasury introduced legislation that brought the sale and administration of funeral plans under the FCA’s remit.
This came after concerns were raised within the media and by consumer groups about the conduct and financial soundness of some pre-paid funeral plan providers.
At the time, the FCA said: “Our proposed rules are intended to protect consumers that have, or will in future take out, a pre-paid funeral plan product.
“We want to see an improvement in outcomes for consumers in this sector, with better value products, better sales practices, and better controls in place so consumers can be confident they will receive the funeral they have agreed.”
‘Plans should provide clients with comfort’
FCA executive director, consumers and competition Sheldon Mills said: “Funeral plans should provide customers with comfort and certainty that their affairs are in order.
“Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations. We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it.
“As we take over the regulation for this market, we will be rigorously assessing firm’s fitness to operate. Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.”
Money and Pensions Service senior advice manager Nicholas Hill added: “We welcome the FCA’s measures to ensure that the funeral plan market is regulated, accountable and provides consumers with good value.
“These changes will come into place in 2022, so in the meantime we strongly urge people to review what they should look for in a plan before making a decision, and to be wary of any cold callers trying to sell them a plan.”