Proposals to drive up standards around pre-paid funeral plans set out by FCA

Proposals to improve standards around the sale and design of pre-paid funeral plans, including a ban on cold calling, have been set out by the City regulator.

The sale and administration of funeral plans is being brought within the Financial Conduct Authority’s (FCA) remit from July 29 2022, following concerns raised about some providers.

People can pre-arrange and pre-pay for their own funeral, generally for a fixed cost, so that their bereaved families do not face these expenses. They may pay as a lump sum or make regular payments.

The estimated total value of existing plans is £4 billion, with around 1.4 million customer plans. In 2019, 165,200 new plans were sold.

The market is currently self-regulated by the Funeral Planning Authority, which has a code of practice and rules but no statutory powers.

Funeral plans may be sold by a third-party intermediary or directly by the provider firm.

The FCA’s proposed rules aim to protect consumers who have, or will in future take out, a pre-paid funeral plan. It wants to see better value products, better sales practices, and better controls so consumers can be confident they will receive the funeral they have agreed.

The regulator is consulting on draft rules to improve standards. All firms will need to be authorised by July 29 2022 in order to continue activities relating to funeral plan businesses.

Under the FCA’s proposals, the price of a plan must have a fair relationship to the benefits the plan provides. The rules would ban the sale of products which do not provide for funeral services in all circumstances on the consumers death.

The proposals also aim to make sure plans are sold fairly, including a ban on cold-calling to prevent consumers being pushed into taking out plans which may not be right for them.

Firms will also be stopped from using additional fees to drive profits and commission payments to intermediaries will also be banned under the proposals.

The FCA said it has observed that intermediaries focused only on selling plans may receive up to £900. Such payments increase the cost that consumers pay.

New standards on advertising will also be introduced.

Consumers will have access to the Financial Services Compensation Scheme and Financial Ombudsman Service if something goes wrong.

Sheldon Mills, executive director of consumers and competition at the FCA said: “Pre-paid funeral plans can help people and their families to manage the costs of a funeral. It is vital that consumers have confidence that their plan will deliver the funeral they expect at a fair value.

“The measures proposed today will help ensure that the industry serves consumers well.

“It’s imperative the industry prepares now, ahead of its upcoming entry into financial services regulation.”

The FCA expects businesses to consider how regulation will impact them and start to make the necessary preparations.

Firms will start applying directly to the FCA for authorisation from September 2021.

They must make sure they meet the regulator’s standards to be authorised.

Funeral plan providers that cannot meet the FCA’s standards, or those which are not authorised before July 2022, are expected to cease trading in relation to funeral plans in an orderly way, before FCA regulation takes effect.

Carrying on regulated business without authorisation after the rules take effect would be a criminal offence.

The FCA anticipates that the Funeral Planning Authority will continue to regulate providers of pre-paid funeral plans registered with them, until FCA regulation starts in July 2022.

The FCA is asking for feedback on the draft rules by April 13 2021.