FCA launches regulation of funeral plans market

The Financial Conduct Authority (FCA) regulation of pre-paid funeral plans has launched following legislation passed by Parliament. The FCA is now authorising 26 providers. Together these firms hold approximately 1.6 million plans, which make up 87% of the market. Regulation of the sector will bring higher standards and boost consumer protection. The rules will include a ban on cold calling. A ban on commission payments to intermediaries, such as funeral directors. A requirement for a funeral plan to deliver a funeral unless the customer dies within two years of taking out the plan, in which case a full refund will be offered.

Customers of authorised providers will now have access to the Financial Services Compensation Scheme (FSCS), so their money is protected if their provider fails. Consumers can also make a complaint to the Financial Ombudsman Service (FOS), even if the issue they are complaining about happened before July 2022 if the firm was registered with the Funeral Planning Authority (FPA) at the time the issue occurred.

13 firms that applied before 1st March 2022, but have not been authorised, have until 31st October 2022 to transfer their plans to authorised firms or refund their customers. These plans are not covered by FCA regulation, meaning there is no protection by the FOS and FSCS until they are transferred to authorised providers.

Emily Shepperd, Executive Director of Authorisations at the FCA, said “We have worked tirelessly to assess funeral plan providers, under our robust authorisation process. We are pleased that 87% of the market is now under regulation. With our new rules in place, consumers will be better protected when they need it the most.

“It is unfortunate that a number of firms chose to exit the market, leaving customers, who had sought peace of mind for their loved ones, understandably worried. It is a good outcome for consumers that some providers have stepped in to provide funerals for the customers of these providers at short notice. We also continue to engage with the industry while it works on a longer-term solution.”

This announcement follows the confirmation of the FCA’s plans to introduce a new consumer duty from July 2023. The consumer duty will apply to funeral plan providers and will mean their customers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.

Caroline Siarkiewicz, Chief Executive of the Money and Pensions Service said “The new regulations for funeral plans will ensure plans better meet people’s needs, while ensuring their money is looked after and used responsibly, as well as being protected by the Financial Services Compensation Scheme (FSCS) if their plan provider goes bust. When considering taking out a funeral plan, make sure you select a regulated provider which can be found on the FCA’s website.”

“If you already have a funeral plan, it’s important to understand how these changes might affect you. Firstly check if your provider is authorised by the FCA. If your provider hasn’t applied for authorisation yet, or isn’t going to, they should contact you to tell you what’s happening with your plan. If you haven’t heard from your provider, contact them directly.”

“We know the average cost of a basic funeral is around £3,800, so this can be a significant expense for you or your loved ones. Preparing in advance helps ease this process at a difficult time and also lets those organising your funeral observe your wishes. Funeral plans are one way to ensure a funeral is affordable, but there might be other ways to save up. Our MoneyHelper website has guidance on ways to pay for a funeral, and will help you understand the pros and cons of each option.”