Important changes to the regulation of funeral plans
American actor and comedian Jonathan Katz once said that he hated going to funerals because he was not a mourning person. Well at least he had a funeral plan.
As from today, 29 July 2022, funeral plan providers and funeral plan intermediaries must be authorised, adopt an exempt status, or rely on an exclusion to carry on regulated funeral plan activities in the UK. Those firms which are authorised must also now comply with new conduct of business rules in the FCA handbook.
What are regulated funeral plan activities?
Regulated funeral plan activities are specified activities relating to funeral plan contracts (of which more below).
For funeral plan providers, the specified activities are:
- entering into a funeral plan contract as a provider; and
- carrying out a funeral plan contract as a provider.
For funeral plan intermediaries, the specified activities are collectively known as funeral plan distribution activities and comprise:
- dealing in funeral plan contracts as agent;
- arranging (bringing about) deals in funeral plan contracts;
- making arrangements with a view to transactions in funeral plan contracts;
- advising on funeral plan contracts; and
- agreeing to carry on a regulated activity in relation to funeral plan contracts.
What is a funeral plan contract?
A funeral plan contract is a specified investment which is defined in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘RAO’). Split into its constituent parts, a funeral plan contract is:
- a contract;
- under which a person (‘customer’) makes one or more payments to another person (‘provider’); and
- the provider undertakes to provide, or secure that another person provides, a funeral in the UK for the customer (or some other person living when the contract is entered into) on his death.
A contract is not a funeral plan contract if it is intended or expected that the funeral will occur within one month of the contract being made.
As a funeral plan contract has long been a specified investment, what has changed?
It is true that since 2002 a funeral plan contract has been a specified investment and entering into a funeral plan contract as a provider has been a specified activity. However, article 60 of the RAO excluded funeral plans covered by insurance or trust arrangements from the definition of funeral plan contracts, and so most providers structured their businesses to make use of this exclusion and forgo the need to become authorised or adopt an exempt status.
In recent years, the funeral plan market has grown and, fearing potential consumer detriment, HM Treasury consulted about funeral plan providers in 2019 and issued its response in 2020. The response concluded that funeral plan activities needed to be brought withing the FCA’s remit and, to do so, the following changes have been made:
- A new specified activity of carrying out funeral plan contracts as a provider was inserted into article 59 of the RAO;
- Article 60 of the RAO has been revoked;
- Funeral plan distribution activities have been introduced as regulated activities into the FCA’s funeral plan regime;
- Funeral plan contracts have also been brought within the regime;
- Customers will now have access to the Financial Ombudsman Service for complaints about funeral plan providers and funeral plan intermediaries;
- Authorised funeral plan providers and authorised funeral plan intermediaries must comply with new funeral plan conduct of business rules, as well as relevant, existing parts of the FCA Handbook.
What is happening to existing funeral plan providers?
Existing funeral plan providers may continue to administer existing funeral plans and enter into new funeral plan contracts if they have either been authorised by the FCA, adopted an exempt status, or they can rely on a statutory exclusion.
If a funeral plan provider does not wish to be authorised, exempt, or rely on an exclusion, then it must transfer all funeral plans to another compliant provider. Should it fail to do so and continue to enter into new funeral plan contracts or carry out existing funeral plan contracts, it will be in breach of the general prohibition which is a criminal offence carrying prison sentences and hefty fines - imposed on the officers of the business!
The FCA keeps and maintains a register of funeral plan providers and their current authorisation application status (https://www.fca.org.uk/consumers/funeral-plans/providers-list). The register provides information to customers about which businesses have applied for authorisation and which have not. It also provides advice to customers about what they should do if, for example, they have an existing plan with a provider that has not applied for authorisation but intends to transfer the plans to another authorised provider.
Funeral plan providers and intermediaries should take legal and regulatory advice to ensure that their regulatory status is correct, and any required changes are implemented as soon as possible.
For further information, please contact Josh Bates at firstname.lastname@example.org or call 0151 906 1000.