The funeral plans industry is undergoing a significant regulatory change with the Financial Conduct Authority (FCA) set to take over on 29 July 2022. Until this day, the Funeral Planning Authority (FPA) is the voluntary regulator of the industry. However, in truth, it lacks any real statutory power. Therefore, it is no surprise to see concern and confusion regarding the safety of prepaid funeral plans after the collapse of Safe Hands Funeral Plans based in Wakefield, West Yorkshire.
Over the coming weeks, we will learn the identity of companies formally authorised by the FCA to offer prepaid funeral plans. The lengthy authorisation process, open to applicants since February 2021, has unexpectedly brought some issues to a head. What is the current state of play with Safe Hands Funeral Plans and the change in regulator? Will refunds be made available?
What happened to Safe Hands Funeral Plans?
Before its collapse, Safe Hands Funeral Plans was one of the industry's leading lights, with more than 45,000 burial and cremation plans outstanding. However, amidst much rumour and speculation regarding the circumstances surrounding the collapse, there are some facts we do know.
Application for FCA authorisation
Initially, Safe Hands Funeral Plans was applying for authorisation under the new FCA regulatory framework. In early 2022, Safe Hands suddenly withdrew this application, and the company formally announced it would cease trading from 29 July 2022. As a consequence, the directors were then legally obliged to work with the FCA to:
- Wind down their funeral plan selling operations
- Transfer existing plans to an authorised provider
Typically, this structured transfer of business to an authorised provider would not have caused any significant concerns. However, as Safe Hands is one of the UK's largest prepaid funeral plan providers, eyebrows were raised. Why did the company suddenly decide against pursuing authorisation from the FCA?
Collapse of Safe Hands Funeral Plans
Amid growing concern, the company stopped trading immediately on 23 March 2022. At that point, Nedim Ailyan and Ben Stanyon of FRP Advisory Trading Ltd were appointed joint administrators. Despite the obligation to ring-fence funds for prepaid funeral plans, the company was insolvent with assets "considered to be significantly lower than the company's liabilities".
Closed for new business
Upon entering administration, the company was closed to new business. However, the administrators implemented plans to assist current funeral plan holders. While the administrators investigate the circumstances surrounding Safe Hands' collapse, existing customers are now in limbo. Unfortunately, Safe Hands' failure left many people short of funds to bury a loved one.
The demise of Safe Hands Funeral Plans has led to a raft of calls from fraudsters looking to take advantage of the situation. If you receive an unsolicited call from someone claiming to be from Safe Hands Plans, FRP Advisory, or to be involved in the administration process, terminate the call and contact the administrators using the contact details below:
Administrators’ email: firstname.lastname@example.org
Administrators’ Freephone helpline (Mon-Fri 9am-5pm): 0800 640 9928
What does it mean for customers with Safe Hands prepaid funeral plans?
As Safe Hands was one of the UK's largest providers of prepaid funeral plans, many customers believed their funds were ring-fenced and protected. However, while funeral plan payments are paid into a trust managed by a third party, there is little in the way of regulations to control how these funds are invested. Initial indications from the administrator suggest that a mixture of loans and investments of varying risk may have severely depleted the funds held in trust. While we await confirmation, plan holders have been advised to expect the worst; their plans are likely to be worthless.
Short-term support from Dignity Funerals
Dignity Funerals, one of the UK's leading funeral plan companies, initially stepped forward to help to ensure that funeral obligations were fulfilled in the short term. Dignity agreed to provide funerals on the company's behalf, creating a window of opportunity for the administrators to find a longer-term solution. Unfortunately, due to financial constraints, the administrators have yet to put in place a plan to fulfil future obligations at the time of writing.
At this moment in time, only a fraction of the funds required to fulfil the company's future liabilities have been recovered. While there has been much speculation concerning the type and location of the trust investments, we await official confirmation from the administrator. Amid suggestions that further legal action could follow, prepaid funeral plan holders will unlikely receive any meaningful compensation in the short term.
Reclaiming credit card payments
The administrators have highlighted the possibility that those who paid funeral plan instalments by credit card may be entitled to compensation under s75 of the Consumer's Credit Act 1974. Rather than contacting the administrator, you should contact your credit card provider directly for more information. Unfortunately, those who paid by direct debit or cash will need to stake a claim with the administrator as a creditor of the company. The administrator will be in contact in due course concerning the process.
Can the Funeral Planning Authority help?
It is safe to say that the funeral planning services industry has dramatically increased in size since the Funeral Planning Authority (FPA) was created in 2002. In the FPA’s first year, pre-planned funeral sales were 46,341; in 2021, they hit a record 216,700. The cumulative impact of this colossal growth means there are now 1.6 million undrawn prepaid funeral plans in the UK.
Before the involvement of the FCA, the FPA had been the only body striving to maintain and improve prepaid funeral plan services while attempting to protect client funds. While not a statutory regulatory body, the FPA has robust Rules and Codes of Practice to which members must adhere. Historically, the FPA has been a helpful reference point to confirm whether individual funeral plan providers are a member of the industry body.
Due to a lack of funding and statutory powers, the FPA has neither the funds nor the authority to carry out member checks. As a result, while members are obliged to agree to the association’s rules and code of practice, ongoing compliance is difficult to confirm. Consequently, with more than 1.6 million prepaid funeral plans undrawn, the FCA is now stepping in as a statutory regulatory body.
The FPA has no compensation scheme in place. Therefore, those suffering financial losses due to the actions of individual funeral plan providers have no route for recourse. While this will change under the FCA regulatory umbrella, this is little consolation to those who have suffered historic and ongoing losses.
Why the FCA changes will be helpful
While the FPA has acted as a helpful industry body, providing a degree of self-regulation by membership, it lacks statutory and financial strength. In addition, there are signs that involvement by the FCA has already prompted many funeral plan providers to reconsider their long-term future. Whether this is a consequence of regulatory or financial shortfalls or the additional cost of the future regulatory burden is unclear.
As of 29 July 2022, the FCA will regulate:
- Funeral plan providers, including those entering into and administering funeral plan contracts, including those sold before FCA regulation.
- Intermediaries, including, for example, funeral directors, will writers, and legal representatives that sell funeral plans to consumers on behalf of providers.
- Additional authorisation. Third parties involved in the sale of prepaid funeral plans can also become appointed representatives of a principal firm. The FCA had initially looked at direct authorisation of individuals working for principal firms, but the regulator later dropped this plan.
- Transfer of business. Those currently involved in the prepaid funeral industry, not planning to apply for authorisation, are obliged to contact the FCA and make plans for the future. This will include the winding down of existing funeral plan business or the transfer of undrawn plans to a regulated provider.
From 29 July 2022, it will be illegal for unauthorised parties to actively participate in the sale and provision of prepaid funeral plan services.
What the FCA taking over means in practice for consumers
It is all good and well discussing the benefits of FCA regulation, but what does this mean for consumers in practice?
While the FPA certainly acted as a useful trade body, supporting a degree of self-regulation, it lacked legal clout. The FCA has a range of statutory powers to ensure continued regulation by individual parties.
FCA funding comes directly from firms participating in the UK financial services industry; therefore, all parties have a vested interest in maintaining the highest standards possible. Consequently, the involvement of the FCA will increase confidence in the prepaid funeral plan sector.
Placing the industry within a clearly defined regulatory structure should encourage other parties to enter the market. This will ensure that consumers receive value for money, higher quality services, and broader choices.
Protection from rogue traders
The FCA has a wide range of powers and can, privately and publicly, censor members that do not abide by the regulations. The array of capabilities ranges from informal warnings to fines and the closure of a business. Consumer protection is at the heart of FCA regulations.
Upon switching to formal regulation by the FCA, those incurring future financial losses from regulated parties will be eligible to apply for compensation. While we await further details, this will likely be through the Financial Services Compensation Scheme (FSCS), an independent body set up by the government and financed by the industry.
Protection against fraudulent activity or third parties no longer able to trade will be a welcome relief for many.
It is fair to say that the transition period, which began back in February 2021, has caused some concern and confusion. According to the latest data, the FCA had an initial list of 66 funeral plan providers in the UK, of which:
- 35 have submitted applications to be authorised
- Ten have withdrawn their initial applications
- Five have yet to apply
- 16 plan to transfer their plans to rivals
As we approach 29 July, other prepaid funeral providers will likely withdraw their applications. While this may involve a managed transfer of existing plans to an authorised party, it could lead to unhelpful speculation about a company's financial position. So, the quicker the FCA issues its preferred list of authorised parties, the better for all.
Recently, the government has been encouraged to consider setting up a compensation fund for the victims of failed prepaid funeral plan companies. While Safe Hands has been the most high-profile collapse so far, there are serious concerns that more medium and smaller-sized businesses will follow. The matter is to be debated in the House of Commons after a motion made by independent MP Margaret Ferrier.
If you would like to check the status of your funeral plan provider’s FCA application for authorisation, go to https://www.fca.org.uk/consumers/funeral-plans/providers-list.
The FCA is a pair of safe hands for the industry
Looking longer-term, bringing prepaid funeral plans under the FCA regulatory umbrella will inject much-needed confidence into the industry. Recent events, including the collapse of Safe Hands Funeral Plans, have significantly impacted consumer confidence. While the situation regarding authorisation is becoming clearer, many prepaid funeral businesses and consumers are eagerly awaiting the switch to FCA protection.