Providers of pre-paid funeral plans “now have just months to prepare for a fundamental shake-up” of the industry after the FCA published new draft rules on how the sector will be regulated, financial services provider BDO has warned.
In January this year, the Government passed legislation to bring the sale and administration of funeral plans within the FCA’s regulatory remit. This followed concerns that customers were not made aware of the limitations of some packages, that multiple plans did not cover full funeral costs and that commission-based sales were leading to high pressure sales tactics.
The FCA’s consultation, published on 2 March, sets out how the regulator proposes to improve standards.
The FCA’s proposals intend to ensure that:
- Products meet the individual needs of consumers – including through a ban on the sale of products which do not provide for funeral services in almost all circumstances on the individual’s death
- Plans are sold fairly, including a ban on cold-calling to prevent consumers being pushed into taking out plans which may not be right for them
- The price of plans are fairly valued, with firms stopped from using additional fees to drive profits and a ban on commission payments to intermediaries
- Consumers have access to the Financial Services Compensation Scheme and Financial Ombudsman Service from day one, should things go wrong
James Garside, a director at accountancy and business advisory firm BDO said:“The FCA has recognised the value that pre-paid funeral plans can provide for consumers who want to plan and manage the costs of a funeral. However, it is clearly concerned that the market isn’t working as it should and has proposed a range of new rules which will fundamentally alter the way the market operates.
“Other industries that have recently come under the FCA’s remit, such as the personal injury market or IVA debt management market, experienced significant increases in regulatory burdens and costs. These led to greater industry consolidation, or in some cases, exits from the market altogether.”
He added: “There is now a small window of opportunity for operators to respond to the consultation, but we anticipate that many, if not all, of the draft proposals will be carried through to the final guidance. Providers really have to take action now to prepare to apply for FCA authorisation this September before the new rules come into force in July next year.”
Given the likely market disruption, BDO also said it is advising providers to assess future compliance costs, prepare robust financial forecasts and consider either divestment of the funeral plan part of their business or look for opportunities to increase market share through internal growth or acquisition.