FCA regulation of funeral plan providers begins

The Financial Conduct Authority began regulating firms and intermediaries that provide and arrange pre-paid funeral plans on 29 July 2022¹. The Financial Services Compensation Scheme said customers of funeral plan providers that are FCA authorised from that date will be protected by the scheme should the firm go out of business¹. The Financial Ombudsman Service confirmed that any financial business selling and providing funeral plans became regulated by the FCA on that date, and that customers of funeral plan providers can bring a complaint to it if they cannot resolve it directly with their provider².

For all types of funeral plan claims, customers are protected up to £85,000 per person, per eligible firm¹. The FSCS said this covers plans bought before 29 July 2022 as well as after, provided the provider has gone out of business on or after that date and is regulated by the FCA³. Where a provider fails, it should have arrangements in place for a new regulated provider to carry out customers' plans, or provide compensation; if those arrangements are not in place, the FSCS protects holders of an authorised funeral plan from a failed provider¹. The FSCS said that in most circumstances customers will not need to make a claim¹.

Where possible the FSCS will offer a new contract with a replacement regulated provider, on a like-for-like basis with the same terms as the original plan, or terms as similar as possible where that is not achievable¹. Customers are asked whether they want replacement cover, and can choose compensation instead¹. If compensation is paid, the FSCS calculates the amount by reference to what it would cost to buy the same plan on today's market¹.

Claims can also be made for certain activities carried out by a funeral plan provider or its intermediaries, such as funeral directors and will writers, including advice to take out a plan or the way a plan was set up. The activity must have occurred on or after 29 July 2022¹. If a plan holder dies after their provider fails but before the FSCS has secured a new plan contract or paid compensation, and the insolvency practitioner cannot secure the funeral, the FSCS may be able to help with the provision of a funeral; the nominated representative or next of kin should contact the named funeral director in the original plan¹.

The FSCS said the FCA is not anticipating any funeral plan firm failures in the 2022/23 financial year³. It said it will publish an average timescale for funeral plan claims when it begins to process them³. The Financial Ombudsman Service, publishing data on 2 November 2022, said that in the small number of complaints it had seen since 29 July 2022, the majority were about the sale of the plan, with consumers saying it was mis-sold because they were not clear what their plan covered. Other complaints concerned the price of the plan and plans not paying out what consumers expected². In the same quarter, July to September 2022, the service received 67,694 new enquiries and 38,470 new complaints about financial products, upholding 34% of complaints resolved; the most complained-about product was current accounts, followed by credit cards².

Why it matters for households

People who hold a pre-paid funeral plan with an FCA-authorised provider now have access to the Financial Services Compensation Scheme if that provider fails on or after 29 July 2022, including plans bought before that date³. The protection limit is £85,000 per eligible person, per firm¹. Plan holders also have access to the Financial Ombudsman Service for complaints they cannot resolve with their provider². Firms not on the Financial Services Register must not sell or carry out funeral plans in the UK; such firms will have either transferred their plans to an authorised provider or begun to wind down, and should contact plan holders³. The FSCS service is free to use, and customers keep 100% of any compensation owed when claiming directly through it¹.

What happens next

The FSCS said it will update its funeral plans page with an average claims timescale as and when it begins to process funeral plan claims³. It also said the FCA is not anticipating any funeral plan firm failures in the 2022/23 financial year³.