Is this the death of the prepaid funeral plan?

Is this the death of the pre-paid funeral plan?

As a result of complaints and demands from consumers, the Government has started to implement changes to the regulatory landscape. The current narrative is focused on Buy Now Pay Later credit, but for some time the FCA has been concerned about the protection consumers are afforded in regard to pre-paid funeral plans.

Regulatory impetus

The Regulated Activities Order sets out what activities are regulated and therefore require the provider to be permitted or authorised by the Financial Conduct Authority (“The FCA”).

Whilst pre-paid funeral plan activities were subject to an exemption, they will not be after 29/7/2022. This driver for change has been the concern that many providers will not be able to fulfil their contractual obligations.

The new changes will mean that any firm wishing to do this will now need to be authorised as this will become a regulated activity.

The timeline leading to this change can be seen from the following chronology;

  • Early in January this year, the FT published an article that stated the FCA will be looking to “crack down on funeral plans this year”, once they have the authority to do so. https://www.ftadviser.com/regulation/2022/01/04/fca-predicted-to-crack-down-on-funerals-in-2022/
  • This update follows other rumblings in the media pre-Christmas, where many publications were discussing the possible impact this could have. The common narrative was that this was a much needed area of regulation to ensure that consumers were not left stranded after contributing to such plans for a number of years.
  • Since then and after scrutiny from Government it will now become a legal requirement to be authorised from 29/ July 2022 and a failure to become authorised will lead to the committal of a criminal offence.

 What does this mean for firms who offer pre-paid funeral plans?

To be a regulated entity is a serious concern. The FCA will scrutinise any applicants. They will expect to see a regulatory business plan, together with a suite of policies such as credit worthiness, suitability and affordability, treating customers fairly and of course vulnerability. Added to this is the need for compliant contractual documentation.

All of the above regulatory requirements do of course have a cost burden for the business concerned.

Commission bans

Alex McGregor, writer for MoneyMarketing, said in his article FCA regulation from the cradle to grave: “Firstly, and something which will be a key point of interest for advisers, the FCA will be banning commission on the sale of all types of pre-paid funeral plan contracts. A pre-paid funeral plan contract will be classified under the new regime as a ‘contractually based investment’.”

Next steps for those continuing to trade

Any firm wishing to either give advice on, or arrange a pre-paid funeral plan with a client after 29th July this year, will need to submit a Variation of Permission (VOP) to the Financial Conduct Authority. Once and if accepted, this means the FCA will then recognise that firm to be compliant for the said regulated activity.

Applications are now open for firms wishing to submit their VOPs. Firms have been warned to act quickly, given that the process can take up to six months to complete.

While firms must be “authorised” by the FCA to offer pre-paid funeral plans, it’s a little early to determine the full reaction to this new regulatory change. How many current providers will leave the market? It is thought there could be many. Where will their customers stand in regard to their plans? If firms refuse to comply, they will need to hand their books to a compliant entity and wind down their business.

With increased regulation there will of course be greater consumer protection. Those that remain in this sector may face less competition.