CP21/4: Funeral plans: proposed approach to regulation
The FCA will regulate the sale and administration of pre-paid funeral plans from July 2022 and have today published a Consultation Paper which sets out their draft rules and approach to regulation. This does not mean that the recommended actions are carved in stone, but in our experience, 95% are unlikely to change.
HOW CAN WE HELP?
In the previous 3 years, our authorisation related work has totalled 47% of our turnover. We have the specialisms that will help your funeral plan authorisation application easier.
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Who does this apply to?
This funeral plan authorisation consultation will interest:
- firms that sell or carry out funeral plan contracts for funerals in the UK
- investment advisers who provide advice on funeral plan contracts
- insurance firms who provide life insurance policies that back some funeral plans
- trustees of trusts and discretionary investment managers which manage the assets of trusts that back some funeral plans
- trade bodies representing firms that carry out or sell funeral plan contracts, including those representing funeral directors
- groups representing consumer interests
- consumers that have a funeral plan, or are thinking of purchasing one
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Why The FCA are consulting?
Funeral plans are products under which a consumer pre-arranges and pre-pays for their funeral with a provider, generally for a fixed cost. The funeral plan could be sold by a third-party intermediary or directly by the provider firm. Mis-selling of any pre-paid service for a time of grief and reflection that turns out to be different to expectations can be devastating. The regulator is well aware that existing contracts may have been sold on different terms to those set out in this consultation and our proposals will generally allow these contracts to continue on those terms. But firms will have to meet a range of standards in their dealings with existing customers as set out in this document, and the FCA’s overarching Principles for Businesses e.g. to treat customers fairly.
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From 29 July 2022, activities involving the provision and distribution of pre-paid funeral plans will come under FCA regulation, and firms conducting these activities will need to be authorised by them.
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The regulators 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. The FCA’s proposed rules will also set a level playing field for firms – all firms who want to carry on this business after July 2022 will need to meet the same standards.
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Outcomes The FCA are seeking
Through our proposed regulatory approach, the FCA want to see a market which works well for consumers, including:
• products which offer fair value, meet consumer needs and are sold fairly
• well run firms with high conduct standards and sufficient resources and risk transfer arrangements to ensure ongoing delivery of funeral services
• consumers have time and all the necessary information to make better informed decisions when choosing between different products and whether a funeral plan is right for them at all
• protections in place to ensure the fair treatment of consumers, many of whom are likely to be vulnerable
• clear, proportionate and standards (that can be supervised) within firms in the sector must meet
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What does this means for firms?
All firms will need to be authorised by 29 July 2022 to continue carrying out activities relating to funeral plan business. The FCA strongly urge firms and other stakeholders to engage with the authorisation process where applicable.
From 29 July 2022, the Financial Ombudsman Service (FOS) will become responsible for resolving disputes about funeral plans.
July 2022 is 15 months away, why do I need to act now?
The authorisation process normally takes 26 weeks for a clean application and up to 52 weeks for others. As there will be a flood of applications, it is important to get your completed and thorough application together before September, so you can get in early and be counted.
If you fail to get authorisation by 29th July 2022, you will have to cease trading in Funeral Plans.
FCA Funeral Plan Authorisation process
It is important that all Funeral Plan firms are aware of what they need to do and by when. The key elements are:
- All funeral plan providers that wish to continue doing so, will need to apply to the FCA
- Firms that sell funeral plans (and do not provide or administer them) can apply for direct FCA authorisation as an intermediary or become an Appointed Representative (AR) of a principal firm. The principal is responsible for the conduct of the AR. The Principal firm is required to notify the FCA in advance if they intend to appoint ARs
- The authorisations gateway for applications is planned to open in September 2021 and firms need to ensure they are authorised before the regulation takes effect on 29 July 2022
- Applications for authorisation and supporting documentation should be submitted as soon as possible after the FCA opens the applications gateway. If not submitted as soon as possible firms may not have sufficient time to demonstrate they meet the Threshold Conditions before the rules take effect on 29 July 2022
- Firms currently trading that submit their applications after 1 November 2021, may incur a late application fee. Note: paying a late application fee does not guarantee that an application will be approved or determined before July 2022
- When submitting an application, all firms need to demonstrate how they meet the minimum standards, known as Threshold Conditions, both at the time of authorisation and on an ongoing basis. These are the minimum standards that all FCA regulated firms must meet, to be able to undertake the regulated activities they want to carry on
- If funeral plan firms, particularly those who provide or administer funeral plans, do not intend to be authorised, they should take appropriate steps to ensure they cease regulated activities and wind down/sell their book prior to 29 July 2022. Conducting regulated activities without authorisation is a criminal offence and doing so may result in prosecution
- Funeral plan providers that are currently trading should let the FCA know if they do not intend to apply for authorisation
- AR notifications should be submitted after the principal firm is authorised.
We have been enabling FCA authorisation Applications since 2008 and have a wealth of experience in this field for all manner of firms from Banks to Wealth Managers, Claims Management Companies to Stockbrokers and many more!
See some of our 5 Star Ratings on Google.
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The requirements for your firm to apply for FCA Authorisation requires a package of documents compiled in a way that the regulator expects. The contents are not proscribed so much as expected. The jargon used, needs to be acceptable to regulator-speak as the FCA admit in the handbook “… uses words and phrases that have specific meanings in the Handbook or in legislation; these may be different from, or more precise than, their usual dictionary meanings.”
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What Do We Have To Provide?
Sole Traders, Partnerships and funeral Plan providers will have certain additional requirements but all firms have to have;
- Regulatory business plan (this is a specialised area – we can help!)
- Wind-down plan (this is a specialised area – we can help!)
- Vulnerable customer policy(this is a specialised area – we can help!)
- Complaints handling policies comprising the below (this is a specialised area – we can help!):
1. Complaints handling procedures
2. Complaints root cause identification procedure
3. Example Management Information (MI) for complaints root cause analysis and correction
- Compliance monitoring procedures comprising the below (this is a specialised area – we can help!):
1. Compliance monitoring programme
2. Example MI to monitor ongoing compliance with FCA rules
- Financial projections comprising the below:
1. Opening balance sheet
2. Forecast closing balance sheet at the end of the first 12 months of trading post-authorisation
3. Monthly cash flow forecast for first 12 months of trading post-authorisation
4. Monthly profit and loss forecast for first 12 months of trading post-authorisation
- Latest annual accounts (if already trading)
- Up-to-date management accounts (if already trading and year-end date for most recent annual accounts is greater than 12 months)
- Companies House form (SH01) (if applicable and firm has already capitalised)
- Details of source of funding (if firm is not a limited company, sole trader or partnership)
- Details of subordinated loans (if applicable)
- Details of other external funding (if applicable)
- Detailed IT controls form (if applicable)
- Evidence of the firm’s registration with the Information Commissioner’s Office
- Staff organisation structure chart (if applicable)
- Controller forms
- Controller and close link structure chart (if applicable)
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If you want to consider a Fixed Price option and need regulatory compliance help to complete your application, you need to
book a discussion with us.
Either
Call 0207 097 1434,
Email info@complianceconsultant or,
If you want a chat about your situation – and to save backwards and forwards with emails etc – please book a mutually convenient time here – https://calendly.com/compliancedoctor/compliance-consultant-zoom-meeting
