Making of Legislation to Move Regulation of Funeral Plans under the Remit of the FCA
The FPA Board notes that Parliament has now signed into law the necessary legislation to begin the process of moving funeral plan regulation under the remit of the Financial Conduct Authority (FCA). The legislation sets a defined 18-month time period for this transition process to take effect. During this period the FCA will devise, consult on, and finalise rules around both the conduct and prudential requirements of funeral plan providers. The transition period will also involve the FCA authorising (or not) plan providers who seek to be regulated under the new regime.
The FPA continues to believe that the implemented approach to enhancing the regulation of this market represents an inappropriate solution. We believe that the new regulatory burden will result in reduced competition, and so less choice for consumers which invariably also leads to higher prices. We also strongly feel that the FCA will not give this market the attention it warrants, because it is so relatively small in comparison to the markets it currently regulates. This will mean that they will be unable to provide the specialised proactive oversight currently provided by us, and so could expose it to an unnecessary increase in regulatory risk.
However, HM Treasury have pursued their favoured solution, and it is now imperative that everyone involved in the industry works to minimise any adverse impact on consumers and customers during the transition period. In order to achieve this the FPA believes this requires:
- HM Treasury, the FCA and provider firms seeking to do everything possible to ensure the FPA can continue to operate fully through the transition period. In doing so, the FPA will continue to provide regulatory oversight for the significant majority of the market currently registered with the FPA. We thank HM Treasury for making it clear that in their view plan providers should remain registered with the FPA and comply fully with requirements during the transition period.
- HM Treasury and the FCA should seek to do everything in their powers, to minimise the consumer detriment, that arises from the FCA authorisation process where firms are not authorised. The FPA estimates many thousands of customers could be at risk and has consistently sought to ensure HM Treasury do not inadvertently create real consumer detriment as a consequence of implementing their policy.
- The FCA consultation process needs to ensure that views are taken from across the market and do not merely reflect the views and interests of the largest providers. This is particularly relevant as the consultation will take place at the height of the COVID-19 pandemic and the associated burdens and costs this is placing on plan providers and directors. Due to the unique circumstances of the current scenario, smaller market participants are likely to have very limited resource and flexibility to interpret and feedback on what will undoubtedly be a significant consultation from the FCA.
- The FCA and the Financial Ombudsman Service (FOS) need to develop a model for dealing with complaints that reflects the particular nature of the market and the requirement for early intervention at times. As an illustration, the standard financial services complaints model will not work where a family is waiting to bury their loved one.
- HM Treasury indicated that a key part of the benefit of FCA regulation would be the inclusion of funeral plans under the Financial Services Compensation Scheme (FSCS). This has continually been set aside to be considered at a later date. It is crucial for the enhanced consumer protection HMT has promised, that clear and appropriate compensation arrangements are part of the regulatory regime.
- HM Treasury and the FCA should give thought as to how they can assist families in the new regime with general queries about plans and also assist families in locating lost plans. These are both services provided by the FPA under current arrangements that will be lost.
Once the FCA have put in place their regime and authorised – or rejected – plan providers, it is likely there will be no ongoing role for the FPA. The FPA Board will address that in line with its statutory requirements. Irrespective of that outlook, the FPA is committed to protecting consumers to the fullest extent possible under the FPA Rules during the transition period. We will seek to assist the FCA in understanding the market and, hopefully, help shape any new rules in a manner that genuinely protects consumers and promotes, rather than removes, competition.
Our aim is, and continues to be, that consumers in this market understand what they are buying and, when the unfortunate time comes to action a plan, that they receive the funeral they purchased. Whatever the regime looks like in the future this objective has to be at its core.