Funeral Plan Providers: New FCA Regulations
Funeral Plan providers have just six months to prepare before the Financial Conduct Authority takes over regulation of the sector. A new raft of rules and expectations mean a sea-change for firms that will be new to FCA regulation, and preparations should factor in ongoing compliance – the initial application is only the first step.
Firms – both providers and intermediaries - must be authorised by the FCA to continue business; if they are not, then they must stop selling and administering funeral plans from 29 July 2022. Firms that have not submitted their application by the end of January 2022 are not likely to be authorised before 29 July 2022, and should also cease business before this date.
The FCA has published a new set of rules that funeral plan providers and intermediaries will be bound by – in addition to applicable rules in the Handbook covering systems and controls, threshold conditions, complaints handling, etc. These rules aim to ensure that funeral plan products are sold fairly, meet consumer needs and offer fair value, and that if a firm fails, protections are in place for the customer.
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In late November, the FCA clarified a number of issues highlighted by respondents to the consultation on the new rules, which provide a guide for firms working towards regulation. Uncertainty around what a ‘good outcome’ would look like – particularly in the case that a firm fails – was a recurring issue. The FCA’s response made clear that there is no one-size-fits-all definition of ‘good outcomes’, but that the expectation is beyond simply adhering to the rules and requirements. Firms will need “to apply their own judgement to consider and ensure that they act in consumers’ interests.” This can be daunting for firms new to FCA regulation.
The FCA does offer some steps that they would consider reasonable in such a case, including the transfer of the plan to a new provider – meaning the damage and inconvenience to the customer is limited. In order to do this, firms will be required to get prior and informed consent – at the point of purchase - from each customer for the transfer of the plan, should the firm fail. The firm should ensure a transfer is on the same terms as the original plan contract, including the choice of funeral director. This response highlights one of the most important considerations in good outcomes – that inconvenience is not passed on to the customer, and that they are able to be confident that the funeral they think they have purchased is the funeral they will get.
Funeral plan providers new to regulation should take heed of the message from the FCA. Using ‘outcomes’ as one of the main considerations in the measurement of a firm’s compliance with its rules and principals is where the Regulator is headed over 2022 and beyond. In its response to the consultation, it touches on a reasonable definition of a ‘good outcome’ in the scenario that the firm fails. This is not the only scenario in which the FCA will expect to see the firm putting customer outcomes at the heart of business.
‘Good Outcomes’ is difficult to define, so the FCA doesn't offer a one-size-fits-all definition – which would undoubtedly make it easier for new firms grappling with this expectation. A definition would, however, defeat the point. Good outcomes for customers depend on the type of business, the size and structure of the organisation, and the demographics of the customer base. It is therefore incumbent on firms to decide their own definition of what a good outcome looks like for their customers.
Some measurements will be fairly straightforward – as with the FCA’s statement that should a funeral firm fail, a good outcome for the customer would be the transfer of the plan to a provider that can supply the same funeral that was agreed and paid for with little inconvenience to the customer, and no extra cost. Others may depend on the particular customer base. The concept of outcomes is different to the customer journey – the outcome is the final result and consequence of the service provided. Outcomes should aim to ensure fairness across the board – some customers will need more support to get the same outcome as other customers, as when a customer with a mental health condition may need more time to process information.
For funeral plan providers, this means being proactive and going beyond basic analysis to look at what good outcomes might mean for their customers, and then monitoring and measuring for those outcomes on an ongoing basis. Drawing on all datasets available to the firm, testing a full range of stress-tested scenarios and assessing a wide breadth of outcomes. This is particularly important for customers of funeral plans – many of whom are likely to meet the FCA’s definition of vulnerable.
At the crux of it all, is the fair treatment of customers. ‘Treating Customers Fairly’, or TCF for short, is a way of business that firms new to regulation will need to get up to speed with fairly quickly. The six ‘consumer outcomes’ provide a good basis for building bespoke definitions of good customer outcomes.
A solid understanding of the fair treatment of customers and TCF is a must. Regular staff training supports the practice of fair treatment and can demonstrate to the Regulator that your firm takes fair treatment seriously. Our online training course on Treating Customers Fairly explains the background to TCF, the FCA’s expectations and why compliance matters, and how each individual can play an integral part. Priced at just £15 per user, the course is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.
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