On 21st April, HM Treasury published its response to its July 2021 consultation on the role of the Financial Services Compensation Scheme where a regulated funeral plan provider fails under the regulation of pre-paid funeral plans.
In its July consultation, the government identified two risks that may arise if a regulated funeral plan provider were to fail under the existing regulatory architecture. These were: i) the FSCS would not be able to secure the continuity of funeral plans for consumers if a funeral plan provider fails, and ii) the FSCS may be unable to recover from trust assets or insurance monies underpinning funeral plans those sums it pays out by way of monetary compensation or in order to secure continuity of cover.
The July 2021 consultation sought views on proposals to:
- Enable the FCA to make rules that will allow the FSCS to secure the continuity of funeral plan contracts, where the provider of these contracts has failed;
- Enable the FCA to make rules that will allow for the FSCS to obtain rights in relation to the trust assets and insurance policies backing funeral plans entered into by the failed provider;
- Enable the FSCS to obtain information from third parties (e.g. trustees and insurers) who were at any relevant time involved in the provision of a failed regulated funeral plan provider’s plans, for the purposes of determining claims made by consumers against that provider;
- Exclude insolvency practitioners from the requirement to be authorised by the FCA in order to carry out funeral plans.
The government will bring forward its statutory instrument as planned. It has also taken the decision to go further to ensure that funeral plan consumers are adequately protected and the response outlines two new provisions of the forthcoming legislation:
- The government will place an additional statutory duty of co-operation on insolvency practitioners. This will require them to co-operate with the FSCS if a regulated funeral plan provider fails.
- The government will make it easier for funeral plan providers that seek to exit the market to transfer their existing funeral plan contracts to another funeral plan provider for regulatory purposes.
The changes under 2. should make it easier for funeral plan providers seeking to exit the market to transfer their undertakings under existing funeral plan contracts to other providers (where the plans will transfer on the same or equivalent terms). In particular the new provisions will allow:
- Funeral plans to be treated as if they had been transferred by one provider (Provider A) to another (Provider B) for regulatory purposes, where reasonable steps have been taken by Provider A to seek express customer consent for the proposed transfer to Provider B, but that consent could not be obtained within a reasonable period (and the providers have notified the FCA of that fact).
- Some providers a longer transition period - in limited circumstances - until 31 October for the regulated activity of carrying out funeral plan contracts as provider (i.e. administering existing plans). This will give these firms more time to achieve authorisation, wind down their business or find an authorised provider to take on their funeral plans. The only providers that will be able to enter the extended transition period are those that are carrying out funeral plans entered into before 29 July 2022, that applied for FCA authorisation before 1 March 2022, but have not obtained authorisation. This will be where the provider is in one of the following situations:
- their application has not been determined by the FCA before 29 July 2022;
- they withdrew that application before 29 July 2022 and have not reapplied; or
- their application was refused by the FCA before 29 July 2022 and they have not reapplied.
- An authorised provider to be treated for regulatory purposes as the person carrying out another firm’s funeral plans if:
- both firms have agreed to a transfer of plans;
- both firms have notified the FCA of the planned transfer before 31 October; and
- it is not reasonably practicable for the providers to achieve a transfer by other means (whether by novation, assignment or operation of law), or a deemed transfer for regulatory purposes as described above, before 31 October 2022.
The legislation will come fully into force on 29 July 2022 - the same time as funeral plan providers come into the FCA perimeter.