I am sure that the FPAs report is not designed to stiffle competition – to the detriment of consumers – but that is exactly what will happen if it is adopted as is – see Question 15 below.
Formal Response to August 2018 Consultation on FPA Rules and Code of Practice April 2019
In August 2018 the FPA issued a consultation document to all FPA registered providers and other stakeholders outlining of our thinking regarding proposed changes to our Rules. We asked specific questions that we welcomed responses to, and we also welcomed general input on any aspect of our proposals. Similarly, we outlined our thinking regarding changes to the Code of Practice and provided a draft version for review.
Consultation responses were invited by 14 September 2018, with our aim being to finalise our way forward by 31 December 2018. The new Rules and Code of Practice would then be put in place with appropriate transitional provisions as necessary to ensure a smooth implementation. Following receipt of consultation responses, the FPA Board considered them and a further discussion was held at the FPA Stakeholder Group meeting on 6 November 2018. This Group had been provided with a high level summary of responses as part of the meeting pack.
The FPA received input pre-consultation responses from the Stakeholder Group meeting on
26 June 2018, which were broadly supportive of the changes being proposed. Formal responses to the consultation were received from 8 companies.
Having taken note of all input received and considered the various arguments put forward, the FPA Board have prepared this summary of response together with conclusions on our intended way forward. This includes revisions to the Rules and Code of Practice. These are final documents and our intention is that these new Rules and Code of Practice take effect from 1 January 2020. In the meantime the FPA will be seeking input from providers on their readiness to comply with the new Rules and Code of Practice.
Q.1 Do you agree the suggested principles governing the Rules and Code of Practice are appropriate? What suggestions do you have, if any, for amending this set of Principles?
There was general agreement that these principles were appropriate. It was suggested we should consider amendments on:
- Changing “not obstruct competition” to “promote competition to the benefit of theconsumer”
- Change sales methods to sales channel or sales model to ensure there is no confusion over how our Rules / CoP might react to poor sales
The FPA believe these proposed changes make sense and appropriate amendments have been made.
Q.2 Do our proposals around plan allocation adequately address the concerns that arise from the lack of allocation of plans? Do you have any suggestions as to how the proposal could be developed?
There was a strong sense in responses that the FPA should go further than we proposed and require allocation. This was further emphasised at the discussion of the Stakeholder Group, with support from both providers and funeral directors. We recognise that this needs to be a prospective rule and that for existing plans there are more challenges. We also recognise that there is debate as to what allocation means in terms of whether we means allocated to a particular FD or to a particular branch of that FD.
Having considered the weight of feedback we are persuaded by the arguments and consequently have changed our proposed Rules to require allocation at or around point of sale to a funeral director company (not necessarily an individual branch) for new plans after 1 January 2020. The Rules require that a customer is made aware of that allocation sufficiently within their cooling off period to allow them to cancel if they are unhappy with the allocation. The Rules also require that the allocated funeral director is explicitly aware the plans has been allocated to their business.
We have also suggested that for plans sold prior to 1 January 2020 registered providers need to provide us with a report confirming details of the current status of all plans in terms of allocation and confirmation as to whether customers are aware of that allocation.
Q.3 Do our proposals around accounting for guarantees help ensure that where guarantees are sold to customers they can be delivered? If not, have you further suggestions as how we might achieve this objective?
There was general support for this proposal with a requirement to clarify language and some detail. We have incorporated further wording to clarify our intentions.
Q.4 Does our proposed Asset Adequacy Report represent an acceptable way forward in mitigating any consumer risk from provider failure? If not, how could the proposal be improved?
There was general support for the ideas behind this report. It was noted there was a need to cover future instalments, perhaps be more specific on what we mean by wholesale price and ensure the existence of the report doesn’t distort trust / insurance models. There were questions raised as to what this report adds on top of the actuarial valuation. Our view is the purpose is quite different and the proposed report is about ensuring that, should provider failure happen, the process is thought through and that there are sufficient assets available.
We intend to move forward with this proposal but with flexibility for the Registered Provider to choose the valuation date as either the calendar year end or their financial year end. To assist with understanding our requirements we have added an appendix providing further guidance.
Q.5 Do any of the alternative ways of enhancing the valuation of liabilities and or providing additional solvency cover provide a better customer outcome and why?
There were a few suggestions supporting alternative but also a recognition of the challenges of implementing (for example getting agreement from professional bodies). Given this feedback we have chosen not to pursue any alternative options.
Q.6 Do you agree with the proposal to keep any report private with the flexibility for providers to publish if they wish?
There was a mix of responses here with some suggesting more transparency and greater publication. Having discussed this, the FPA view is that we should begin by keeping these reports confidential and then separately consider publication in the future when reports have been developed and we have issued further guidance on what we might consider as best practice.
Q.7 Do you agree it is helpful to have Principles of Business set out in the Code of Practice?
It was broadly agreed these were helpful and noted that we should ensure Rules are consistent with these Principles. We believe that they are and will seek to ensure any future amendments stay true to the Principles.
Q.8 Do you agree with our proposed approach to guidance we have issued? If not, why not?
This was generally agreed and it was suggested that moving forward the Rules would benefit from additional guidance, which is a feedback point we will take on board and seek to implement across a range of areas.
Q.9 Is our definition of vulnerable customers sufficiently clear? How could it be improved?
The feedback we received suggested that we needed to revisit our definition and provide greater clarity. We received some helpful suggested wording and encouragement to look further at FCA definitions. We have done so and a revised definition is included in the revised Rules.
There was also a suggestion that we should make it mandatory for providers to have a vulnerable customer policy. This was heavily supported at the Stakeholder Group discussion in November 2018 and we have incorporated this into the revised Rules / CoP
Q.10 Is our proposed minimum cooling off period acceptable? If not why not?
This was supported with further comments that there needs to be clarity on when the period starts and potentially consideration in the future for the period to be extended. We have incorporated further amendments to clarify our view.
Q.11 Are our additional requirements in relation to customer information appropriate? How could they be improved?
These proposals were broadly supported, with some concern raised over a small number of specific points. On FMP plans one provider did not support the idea of disclosing the maximum amount that might be paid under an FMP plan, and another thought we should go further in our requirements more in line with the Financial Promotions regime. The FPA Board have considered the various points raised and in relation to the FMP requirement, have amended the position to require providers as a minimum to disclose the age at which the contributions paid to the FMP based funeral plan will equal the current cost of the equivalent plan paid by a lump sum. Alternatively (or in addition) the provider can disclose the maximum amount that would be paid for the plan if contributions continue until age 90.
Q.12 Is our definition of a complaint appropriate? How could it be improved?
There is support for a definition of a complaint, and suggestions that we should differentiate between customer complaints and other complaints such as FD disputes with providers. We will look further at this. More significantly, comments were made about having two tiers of complaint more along the lines of the revised FCA complaints definition. This effectively involves separating low level expressions of dissatisfaction, which have no material impact (financially or otherwise) on the customer from more significant complaints. We have considered this and believe that such a caveat would require providers to demonstrate they could identify the expressions of dissatisfaction and evidence how they determine whether any particular situation falls into one category or another. Given this, and the relatively low level of complaints in the industry, we see little merit in adding additional complexity. Of course, none of this precludes firms having their own separation on this basis. We will therefore continue with our proposed definition with a minor clarification to highlight that the complaint has to come from a customer or someone complaining on the customer’s behalf.
Q.13 Are our proposed complaints reporting requirements appropriate? How could they be improved?
These were broadly supported with requests for further guidance from the FPA on complaint categorisation and root cause. We will seek to issue further guidance in due course.
Q.14 Do you agree with the incorporation of the requirements re third parties directly into the Code of Practice? If not, why not?
These proposals are supported with acknowledgment that complying puts a burden on firms.
Q.15 Do you agree with the proposed requirements for Registered Providers in respect of third parties? If not, why not?
There was general agreement on these requirements. Some concern was raised over firms selling more than one provider’s plans, further heightened when a combination of FPA / Non FPA providers plan are sold. We have considered this but unless such third parties are providers are directly regulated by the FPA (which is currently not a feasible solution) we cannot see an easy solution to not make this a requirement for FPA providers. Ultimately, if a provider cannot oversee what such third parties are doing then the provider should not be working with them.
Comment from the Prepaid Funeral Review Team.
Q15 will stiffle the development of competition and of the sort of Independent Advice which we give by making it far more difficult to work with multiple FPA Members and impossible to work with both FPA members and non members, We have had cause to complain about both members and non members, so we believe this would be a step to far in protecting consumers – competition and multiple choices has to be best for consumers, as is Independent Financial Advice.
Q.16 Do you think our approach to training and competency is sufficient?
There was a general agreement but a question was raised about whether there should be a separate section in CoP that goes further and explains the concept of Fit and Proper and our interpretation of it. The FPA Board have considered this and have added additional guidance in our Rules as to how fitness and property is assessed.
Q.17 Do you agree with our proposed approach to commission disclosure and also disclosure of all aspects of the value chain including commercial arrangements between Registered Providers and Funeral Directors? Please explain your reasoning.
There was general agreement on proposals with one dissenter suggesting disclosure of both commission paid and amount set aside to pay the funeral. The FPA Board has recognised this is an issue that needs further consideration and we will be pursuing further investigation of the issues involved.
Q.18 Do you agree we should not seek to ban particular approaches to selling?
There was general agreement that we should not be seeking to ban approaches to selling. However, there was a caveat that if something is clearly bad for customers then we should ban and not rely on anti-competitive arguments to support no action. The FPA Board accept this and will ensure our Rules are focussed around customer protection.
Q.19 Do you agree with the suggested approach of granting the Compliance Committee additional powers including the ability to level fines and make suspension of registration public? If not, why not?
The responses were supportive but there was a clear message that the Rules need to be clearer with regard to the role of the Compliance Committee and Disciplinary Process. There was support for making the outcome of any disciplinary process public as long as firms are given right to appeal before publication. The Rules have been amended to add further clarity and address comments raised without changing the role of the Compliance Committee and the Disciplinary Process.
Q.20 Do you agree a limit of £10,000 on the fine that can be levied by the Compliance Committee is appropriate? Please explain your reasoning.
It was noted that this needs to be more clearly explained in the Rules but general acceptance of the proposal. The Rules have been amended accordingly to increase clarity.
Q.21 Do you agree with the proposal to allow the FPA to appoint a skilled person on the basis suggested? If not, why not?
This was supported but with a caveat that there needs to be sufficient protections in place to ensure the FPA used such a power in a proportionate and controlled manner. Having considered this, the FPA Board has added a further constraint that any such proposal to instigate a skilled persons report has to be explicitly agreed by the FPA Board. The Rules have been amended to reflect this additional condition.
Q.22 Do you agree with the proposal to increase the maximum fine the FPA can levy? Please explain your reasoning.
This was agreed, recognising the requirement for further clarity noted in response to questions 19 and 20.
Q.23 Do you agree that the suggested levels of the maximum fine are appropriate? Please explain your reasoning.
This was agreed, recognising the requirement for further clarity noted in response to questions 19 and 20. It was also noted that we need to clarify what is meant by turnover. Additional wording has been added to this effect.
Q. 24 Do you agree with our proposal to allow a Disciplinary Panel to require the FPA to make the result of a Disciplinary Decision Notice public? Please explain your reasoning.
This was broadly supported, subject to having appeals processes that were completed before publication of any Disciplinary Decision Notice. The Rules have been amended to clarify this point.