FCA update for funeral plan providers

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financial conduct authority

FCA update for funeral plan providers

We are writing to make you aware of changes to legislation that have been announced by HM Treasury today. The legislation contains provisions to make it easier for funeral plan providers seeking to exit the market to transfer their undertakings under existing contracts to other providers for regulatory purposes. 

These should particularly help firms who want to transfer books of funeral plans on equivalent or substantially similar terms, to do so in the following circumstances: 

  • Where the firm has taken reasonable steps to contact customers and obtain consent to the transfer, but they haven't responded. For regulatory purposes such contracts can be treated as if they had novated to another provider.  
  • Where there is insufficient time before 29 July to take reasonable steps to contact customers for explicit consent. A temporary provision will allow transfers in such circumstances (provided certain requirements are met). 
  • Where firms applied for authorisation before 1 March and have withdrawn or had their application refused. A provision creates a transition period to carry out existing plans until 31 October 2022 outside the regulatory perimeter, while they transfer or wind down their books. Firms may not enter into new funeral plan contracts from 29 July without being authorised. 
  • Where firms applied for authorisation before 1 March and have not yet been authorised. A provision creates a transition period to carry out existing plans until 31 October 2022 outside the regulatory perimeter, to allow more time to be authorised. Firms may not enter into new funeral plan contracts from 29 July without being authorised. 

Please refer to the Treasury’s consultation response for more details.

What we expect from firms    

For firms who won't be authorised by 29 July, or who wish to transfer their plans in the future, the best outcome for customers will normally be for their plan to be transferred to another provider on the same or equivalent terms. These provisions should help firms who wish to do so. Firms who would not be able give equivalent or substantially similar terms to customers who transfer may not use these provisions.  

In the table below we are setting out our interpretation for firms of some of the terms in the legislation. We do not have sufficient time ahead of 29th July to consult on new guidance on what we understand is required by these provisions.  We are nevertheless providing the view below to help firms understand what may be expected in order to meet the tests set out in the legislation.   We feel it is important to assist firms so far as possible that are transferring plans or considering either transferring or acquiring books in the future. Please note that the courts (rather than the FCA) ultimately interpret what is meant by legislation and if firms are unsure they should seek their own legal advice.  If you have additional questions, please contact either the case officer for your application or FuneralPlans@fca.org.uk. 

Question around terms in the SI 

Our expectations of firms 

What counts as ‘reasonable steps’ that a funeral plan provider should take to secure customers’ written consent before transferring their funeral plans to another provider?  

As a minimum, we expect firms to keep proof of written contact to each customer’s last-known postal and/or email address held by firm.  

What counts as a ‘reasonable period’ (i.e. the period a during which a customer has not provided written consent to the transfer, in spite of the firm taking reasonable steps to secure it)? 

A period of 4 weeks would be reasonable in most cases.  

What do we expect a ‘substantially similar undertaking to that customer’ [to the original funeral plan contract] to provide? 

The undertaking should deliver at least the funeral arrangements specified in the original contract. If the firm needs to make alternative arrangements, we would expect these to: 

  • Deliver an equivalent funeral to that specified in the original contract (including any additional services or disbursements specified in that contract) 
  • Not include any additional payments from the customer or their estate to deliver the undertaking.  

What counts as ‘not reasonably practicable’ (to assume funeral plan undertakings by novation, assignment or operation of law. Before 31 October 2022)? 

This might include where: 

  • There is insufficient time available to secure consent from customers to novation, or to transfer contracts by operation of law, and/or  
  • Where transfer by operation of law would involve disproportionate costs (in relation to the numbers of customers) or, for instance, the required vote process is not achievable in the time available.  

Firms should not rely on this to leave commercial negotiations too late in the day, thereby creating a situation where it becomes avoidably too late to transfer the undertakings by one of these three means (i.e. novation, assignment or operation of law).  

How and when is ‘the undertaking given to the customer’? 

We consider two steps are necessary to fulfil this requirement:  

  1. Deliver a binding undertaking to the customers being transferred at the time of transfer, such as a deed poll (which does not need to be accepted to be binding). This could then be published on the firm’s website.  Though not currently a requirement, we are considering the need for additional rules to require firms to deliver this undertaking.  
  2. Under our rules (FPCOB 10.1.11R), the accepting firm must also, within 30 days of the completion of the transfer: 
  • Notify the customer and nominated representative of the transfer, and 
  • Notify the customer of the funeral arrangements (meeting the requirements of FPCOB 10.1.8R).