The aim is to protect consumers by ensuring better outcomes in terms of better value products, more efficient controls in place and effective sales practices. The FCA have reminded Firms are expected to fully comply with the FCA's rules and guidance.
In September 2023, the FCA published a Dear CEO letter which highlights the FCA's priorities for the Funeral Plan Sector for 2023 to 2025 and gives further guidance on how firms can remain compliant.
Key messages from the Dear CEO Letter:
Funeral Plan providers need to ensure they maintain adequate financial resources and monitor their prudential risks closely. The FCA have stressed the importance of firms being able to meet their capital and liquidity requirements and liabilities; failure to do so may lead to negative outcomes for consumers. Firms need to ensure they have the appropriate controls and governance procedures to meet this standard. The FCA will be monitoring the regulatory returns data and evaluating risk assessments.
Solvency Assessment Reports will also continue to be reviewed; the FCA have reported that the level of detail currently produced in reports has not been sufficient and this has led to the FCA not being able to fully understand how solvency levels are assessed and how risks are dealt with.
For firms offering trust-backed products, there must be a diversified mix of investments for their funds and they must consistently monitor their trust solvency. Firms offering insurance-backed products need to ensure they have appropriate investment plans to make sure that there is no gap between insurance asset growth and the impact of inflation. Wind-down plans will also need to be reviewed annually and firms must show that they will be able to remain stable and sustainable through stress scenarios and that they can mitigate risks in these situations.
Actions to be taken by firms:
The Dear CEO letter updates firms about the specific risks the FCA are concerned about and gives guidance on how firms can reduce these risks. These sector specific priorities include:
- Embedding the Consumer Duty: Firms must ensure they are delivering consumers a fair price and value for funeral planning products. Consumers must be provided with clear and accurate information at all times. This must be from the time a consumer contacts a firm to the point of delivering the funeral. Firms are also required to conduct a review of their closed books and the deadline for this work is July 2024.
- Consumer Support: Consumers may be harmed from inaccurate or misleading information which can lead to them making poor decisions. Firms need to ensure they have appropriate policies, systems and controls to be able to analyse complaint data and need to be able to respond sufficiently so that the customer receives as much support as possible.
- Supporting Consumers in Financial Difficulty: The cost of living crisis has made plan-holders vulnerable and firms are expected to be flexible to consumers' changing needs. This means cancellation charges must be proportionate and there must be flexibility of instalment payments.
- Improving Oversight of Appointed Representatives ("ARs"): In the Funeral Plans market, the principal is the product manufacturer and the AR is the distributor; however, the principal has the responsibility for the sales process. The principal must make adequate provisions and be able to pay for funerals as required. Funeral services delivered by ARs must also meet consumers' expectations.
- Governance and Culture: Poor governance and culture has led to the majority of conduct failures in the Funeral Plans sector. Firms need to ensure they have sufficient controls and oversight procedures that are in line with the size of their business.
- Operational Resilience: Data shows a lack of operational resilience, such as failure to protect client data. Firms need to have proportionate plans in place to mitigate risks from cyberattacks.
- Regulatory Reporting: The FCA received numerous regulatory returns from Funeral Plan firms that were inaccurate or had missing data. Firms that act as a principal firm with ARs must also provide regular reporting data and from December 2023, this includes AR complaints and revenue data.
- Unauthorised Business: The FCA also stated they are aware of ARs holding undeclared legacy funeral plan books without appropriate permission, which means they are unauthorised. This shows the need for a significant increase in oversight of ARs by their principal firms.
As next steps, you should:
- Consider how the FCA's findings could be applicable to your firm and take appropriate steps to reduce the identified risks;
- See the FCA's Funeral Plan webpages, which include the latest updates and details on how to comply with rules and regulations; and
- Be prepared to regularly report data with a sufficient level of detail.
For information on how DWF can help you ensure your systems and controls meet the FCA's expectations, please get in touch.