Life after authorisation for funeral plan firms

9 June 2022 | UK & Europe | Articles

From 29 July 2022, if you provide or distribute pre-paid funeral plans, you’ll need to be FCA authorised. Obtaining authorisation from the FCA is just the start of the journey for firms in this sector, but what does life look like as a regulated firm?

We expect the FCA approach to be similar to that when they began their regulation of the consumer credit market in 2014, working closely with the industry and other stakeholders to raise standards and improve outcomes for consumers in these markets. Due to the relatively modest size of the market and number of authorised funeral plan firms, the practices of individual firms will be highly visible, and consumer outcomes closely monitored.

The FCA are likely to deploy a wide range of regulatory tools, including but not limited to:

• Engagement with and guidance for firms to raise standards and encourage good business models and practices.
• Targeted supervisory and enforcement action to address harm where this occurs
• Introduction of new rules, or development of existing rules to address practices and outcomes across the market.

What will the first few years look like following authorisation?

While an arduous process in its own right, getting authorised is just the start of the journey and you will now be expected to embed and maintain regulatory standards and obligations through your firm.

There are many key areas where the FCA will be applying scrutiny, which you’ll now need to consider as you build your long-term approach to compliance.

Effective governance and high-level controls

• SMCR maintenance – The FCA will hold senior managers personally responsible for customer outcomes, requiring you to maintain ‘reasonable steps’ records to evidence decisions made.
• Culture – The tone that is set by senior management and how a healthy customer centric culture is embedded throughout the firm.
• Operational resilience – Scenario stress testing, as well as having an effective wind down plan in place to protect customers in the event of failure.
• Prudential requirements – Adequate trust or insurance arrangements and whether sufficient funds are available to meet your liabilities.
• Policies and procedures – A comprehensive suite of appropriate policies which can be easily interpreted by staff to ensure consistent application.
• Systems and controls – Appropriate and reliable technology to comply with regulatory requirements, and defined procedures to provide an effective control environment.
• Appropriate board composition, governance and committee structures – Diverse senior management compositions, with effective governance structures to allow effective oversight and governance of the firm.
• Product governance and distribution chains – Product design, manufacture and distribution processes which offer fair and good value to customers
• Remuneration structures – Firm remuneration practices that consider fair value for customers and staff remuneration procedures that don’t conflict with their duty to act in the customers best interests
• Management of conflicts of interest – Whether all reasonable steps have been taken to identify, prevent and manage conflicts of interest
• Management information – Appropriate MI available to senior management to conduct effective analysis of operations, identify root causes, and provide sight of day-to-day operations
• Risk management framework – An overarching risk management system, identifying incidents and breaches, logging appropriately and escalating where required
• Record keeping requirements – Ensuring appropriate systems and controls are in place to maintain adequate records

Operational Controls

• Complaints procedures – Comprehensive policies and procedural documents, supported by a redress and remediation framework and training modules allowing effective identification, investigation, handling and administration of complaints.
• Sales processes – Whether products sold to customers are suitable for their needs and that sales staff act in the customers best interests
• Fees – Evidence that all fees associated with products and services have been assessed and are consistent with that assessment, ensuring excessive profits are not being made, in line with fair value measures

Training and competency

• Training and competency framework – Ensuring appropriate systems and controls are in place to evidence the training and competence assessment of staff, including an annual training plan
• CPD requirements – Assessing whether appropriate staff have been identified and that sufficient training modules and development time are contributing to the required 15 hours on a rolling annual basis

Regulatory reporting

• Six monthly and annual reporting requirements – Ensuring accurate RMAR (Retail Mediation Activities Return) and complaints returns are provided

Three lines of defence

• Effective 1st line systems and controls to monitor quality assurance – Having a quality assurance framework in place, which maintains independent quality oversight
• An independent second line Compliance team – Providing independent oversight of firm operations to provide assurance to the board
• Regulatory horizon scanning – A framework to monitor and assess regulatory developments to help identify emerging regulatory risk
• Compliance working methodology – A defined approach to conducting compliance reviews within the firm
• Compliance monitoring plan – A methodical and documented process for pulling together annual compliance monitoring plans
• Compliance reports – A reporting template, used by compliance to document what has been reviewed, what the findings are, with recommendations/actions and deadlines provided
• Action-tracking – A documented process for tracking actions set from compliance reviews

Managing the peaks and troughs of regulatory oversight

All compliance departments face challenges to do more, with less, and this is especially true when providing comprehensive second line support, whilst controlling headcount and costs. Assessing what is needed for firms new to the world of regulation on an ongoing basis is difficult, leading to pinch points and capacity issues, when fluctuating business needs don’t always match staff volumes and skill sets.

To combat this, many firms use a co-sourcing model to manage compliance, enabling firms to call on support, as and when it is needed.

For firms, co-sourcing has several benefits, including:

• Access to expertise not available within the firm
• The flexibility to match resource to peaks and troughs
• An ability to manage project requirements, without impacting internal resources
• Gain benchmarking experience from the wider market
• Developing a control framework using best practice knowledge and avoiding reinventing the wheel
• Faster reactions to changing demands quickly, without protracted processes

We’re actively supporting firms as they prepare for life as a regulated firm. You can find out more about our support, or get in touch below to discuss any areas further.