Case study: preparing for regulation of the pre-paid funeral plan sector

This is a slightly unusual case study. The time for writing up a case study normally comes when a project is done and dusted, signed and sealed, wrapped up and put to bed. But this one is a work in progress. We’re doing it this way because, at the time of writing in April 2021, our client, like every other player in its sector, is working through a process of readjustment. 

It’s been clear for over a year now that the UK pre-paid funeral plan market – worth an estimated £2bn per annum – will be brought within scope of regulation by the Financial Conduct Authority (FCA). Previously, the closest the sector came to being regulated was the voluntary option of signing up with the Funeral Planning Authority (FPA). As firms are now starting to realise, formal regulation by the FCA is a very different beast from any voluntary code. The worst sanction the FPA can impose is a public slap on the wrist. Falling foul of the FCA can see senior employees winding up in prison.

Faced with those sorts of sanctions and the prospect of jumping through the challenging array of hoops required to secure FCA authorisation, some players in the sector are preparing to wind down or pass on their involvement in the world of pre-paid funeral plan provision. But most are not. Some, like the subject of this case study, an FPA-registered funeral plan provider, have a rough idea what FCA regulation requires. Others – including many funeral plan intermediaries and funeral directors – are still worryingly unaware of what’s being asked of them.

That’s worrying because there really is very little time to spare. Legislation paving the way for FCA regulation has duly passed through parliament. The FCA has set out its plans for regulating the pre-paid funeral plan sector and published a consultation paper (CP21/4) inviting feedback. This consultation closed on 13 April this year, with confirmation of the FCA’s final rules expected soon. Regulation kicks in on 29 July 2022. That doesn’t leave long for firms to prepare for the rigours of life in the regulated financial services space.

Recognising the short notice and tight deadlines imposed by its fast-tracked countdown to regulation, the FCA has already published a draft version of the online form that firms must fill out to apply for authorisation. With more than 50 tightly-packed pages of questions and document upload requirements, even a cursory glance through this document makes clear the challenge awaiting firms new to the world of regulated service provision. The more clued-up firms, like the subject of this case study, have been preparing themselves for some time now. For those who haven’t, it’s not too late – but there’s no time to waste at this point.

For a seasoned compliance services provider like UKGI, a lot of what firms in the funeral plans sector are going through is actually quite familiar. In a sense, our expert team has been here before, several times over. We’ve worked extensively, for example, with general insurance firms preparing for the shift from supervision by the General Insurance Standards Council (GISC) to regulation proper back in 2004, and more recently with consumer credit and claims management companies as they came under the remit of the FCA.

We understand the stresses and strains that come with raising your game to meet the strict standards required by a regulator like the FCA. We have the insight and experience to do much more than simply help firms fill in an application form. From a plain-speaking authoritative sense-check to a full-blown hand-holding exercise all the way from initial audit to authorisation, we are fully equipped to provide the help funeral planning firms need. Indeed, we are already helping a number of firms in the sector and have been for more than a year now – including both plan providers and intermediaries, insurance-backed and trust-backed.

All of which brings us back to that case study we were promising. We were approached some time ago by a funeral plan provider who had understood that major change was coming down the line and recognised it needed help from someone who understood what it takes to secure FCA authorisation and prepare fully for life in a regulated universe. 

The first step in the process was for our experts to undertake a thorough initial audit. This essentially entailed understanding how the firm currently operated, what systems, policies and procedures it had in place, and how this all mapped across to what the FCA is looking for. This involved a gap-analysis exercise that captured what would be required to take the firm from its current state to something fully regulation-ready.

The client put together what it called a programme team comprising all the key individuals who would be responsible for owning and driving the change process up to the point of authorisation. We delivered training to all its members to get them fully up to speed with the FCA’s thinking on issues like conduct, complaint handling, conflicts of interest, the Senior Managers & Certification Regime (SMCR) and handing client money.

We also provided specific training on SMCR for the firm’s senior-level staff, ensuring they fully understood their regulatory responsibilities and the extent of their individual accountability. A further strand to our interaction with senior staff was a number of meetings to discuss how the firm can turn its regulatory status to commercial advantage and use it as a selling point to drive its business forward.

Since the FCA’s consultation paper became available for review, we have been working with the client to ensure we have fully understood its implications and what actions it necessitates. This has involved helping the firm prepare its response to the consultation (now closed) and factoring all available information into the ongoing process of completing the draft application form and compiling or creating (and carefully reviewing) all the required supporting evidence.

Running in parallel to the process of preparing to be ready to press the button on a completed application when the portal opens on 1 September is that of working through the gap analysis from the initial audit and ensuring the client has an appropriate compliance framework in place with all the relevant systems, controls and policies around it.

At the same time, we are working with the client to make sure it has a fully developed support system in place for managing its extensive network of appointed agents (ARs), with appropriate controls in place for the ongoing monitoring and supervision of these ARs.

All of these activities help ensure the client will be 100% ready to submit a fully completed and fully considered application as soon as the portal opens. Not hitting that target could have serious consequences for firms aspiring to FCA regulated status. 

If nothing else, aiming to be ready well in advance of 1 September helps guard against the potential impact of underestimating how much work can be involved in getting your business ready for regulation. Failure to apply before 1 November this year could not only result in a late application fee but also risk not securing authorisation before regulation day on 29 July 2022.

In that worst case scenario, a firm would not only need to cease engaging in funeral plan related activities but would also find itself in an untenable situation in relation to plans already in existence for which it retained responsibility without the necessary regulatory authority. The prospect of ending up in such a predicament should be sufficient to deter any firm from taking a complacent or blasé attitude to the need to secure authorisation.

We are absolutely confident that the firm discussed in the case study above will have no difficulty securing authorisation in a timely fashion and, thereafter, operating in full compliance with the new FCA regime over the long term. If you feel anything less than fully confident that your own firm is on track to achieve the same outcome, we would strongly urge you to get in touch as soon as possible to find out more about how we can help secure your ongoing ability to operate compliantly and profitably in the pre-paid funeral plan provision space.

  

UKGI is a trading style of UKGI Limited and UKGI Services Limited which are wholly owned subsidiaries within UKGI Group Ltd. UKGI Limited acts in compliance services and UKGI Services Limited acts in support services. UKGI Services Limited is a wholly owned subsidiary of Total Broker Solutions Limited, which is an appointed representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority (FCA) under reference number 421154. UKGI Limited Registered in England No. 03544014. UKGI Services Limited registered in England No. 04953835. All Registered Offices Number 22 Mount Ephraim, Tunbridge Wells, England TN4 8AS. VAT registration number 347 2664 82.