HMT’s action in response to concerns raised about the Provider
11. FCA is an independent regulator, accountable to HMT and Parliament. The Ombudsman cannot investigate FCA’s actions but can consider the administrative actions of HMT in its oversight role of FCA.
12. As we set out in paragraph three, Mr and Mrs D complained HMT did not act as it should have on concerns put to it in 2017 about the Provider.
13. Under the Financial Services Act 2012 FCA must carry out an investigation where it appears ‘events have occurred in relation to a regulated person (or collective investment scheme) which indicated a significant failure to secure appropriate consumer protection…and those events might not have occurred, or the failure or adverse effect might have been reduced, but for a serious failure in the system…for the regulation of authorised persons and regulated activities’.
14. Also, if HMT receives information and sees evidence of these conditions, it can instruct FCA to investigate.
15. Until 2022, a funeral plan provider was exempt from the requirement to be authorised by FCA if it undertook that sums paid by the customer under the contract would be held on trust for the purpose of providing the funeral, and that the trust met other requirements. As this applied to the Provider, which Mr and Mrs D paid into, it was exempt from regulation by FCA.
16. In October 2022, HMT replied to Mr and Mrs D’s complaint. HMT said it had no investigatory or enforcement powers of its own. It said it had acted on general concerns about the funeral plan market in the report (which we referred to in paragraph six), and ‘responded quickly to bring the sector into regulation. However, the process…typically takes a number of years’.
17. HMT also said its staff advised the parties we mentioned in paragraph six that any concerns about the Provider should be reported to FCA.
18. We note FCA’s role is to ensure financial markets, and the businesses within them, work well. FCA encourages consumers to report poor business conduct. This helps FCA understand risks to consumers, including from specific firms, and it helps inform its approach to regulation.
19. We saw evidence to indicate HMT passed on concerns it received about the Provider to FCA in 2017/18. We also saw FCA considered those matters.
20. HMT told us the 2017 report (which we mentioned in paragraph six) highlighted concerns about lack of clarity for consumers in relation to funeral plans; high pressure sales tactics; poor transparency around customer payments, and lack of access to the Financial Services Compensation Scheme or Financial Ombudsman Service.
21. The publication of the report led to the meeting at which HMT told the consumer group to refer its concerns to FCA. As far as directing FCA to conduct an inquiry, HMT said none of the 2017 and 2018 concerns related to a regulated activity given the Provider was exempt from FCA regulation.
22. We saw FCA replied to complaints from consumers about the Provider. In these responses, FCA confirmed the Provider was exempt from its regulation, and why that meant the Provider’s activities were outside FCA’s jurisdiction.
23. HMT also told us about indirect oversight funeral plan providers would have been subject to by FCA in 2017/18.
24. It said even funeral plan providers backed by a trust, which were exempt from FCA regulation, were subject to indirect FCA oversight and other safeguards. This included that the trust fund manager had to be authorised by FCA and so subject to rules and supervision; trustees had a duty to act in the beneficiaries' best interests; and actuaries assessed the value of assets and liabilities. As well, about 95% of providers were selfregulated by the Funeral Planning Authority (FPA) voluntary code.
25. The FPA code included that providers ensure ‘funds are protected by being held in trust, are regularly audited, regularly reviewed by an actuary and are only invested by independent fund managers authorised’. The Provider had become a registered member of the FPA in July 2019, which suggested the FPA had considered it met the requirements of the code.
26. Our Principles of Good Administration include ‘Getting it right’, which in turn includes that public bodies must comply with the law, and act according to their statutory powers and duties and any other rules governing the service they provide.
27. We are satisfied HMT did not have the legal power to order FCA to investigate the Provider because it was exempt from regulation under the legal framework at the time. However, HMT acted appropriately by referring the concerns about the Provider to FCA. So, we see no indication of maladministration in how HMT acted.
HMT’s progression of legislation
28. Regarding Mr and Mrs D’s concerns on this matter, HMT told us the financial services sector is always evolving, and government may assess whether new or existing activities need regulation. After the 2017/18 meetings, HMT said it decided to bring all funeral plan providers into regulation.
29. To do this, HMT considered responses and evidence collated through a policy making process. This included:
• a July 2018 Call for Evidence ‘to ensure that the government understands the market and to gather further evidence’ that included meetings with providers • a June 2019 Consultation on policy proposals and draft impact assessment on the proposed regulatory framework, to ensure ‘regulation is necessary, proportionate, and effective’ • a March 2020 Consultation response and updated impact assessment – a summary of the feedback the government received and whether/how it was amending its approach.
30. HMT said it had to include a transition period, to allow FCA to design, consult on and implement a new regulatory framework. That would allow funeral plan providers to apply for authorisation and for firms who chose not to apply for FCA authorisation, or were unsuccessful in their application, to transfer their plans.
31. HMT’s consultation outlined the incentives for other providers to take on contracts that needed to be transferred: to increase market share and to protect the reputation of their industry. HMT acknowledged that bringing a previously unregulated sector into regulation created a possibility some providers were not able to meet the threshold for authorisation.
32. From January 2021 Parliament considered HMT’s proposed legislation, and from March 2021 FCA had shared its own plans and consulted on how it planned to regulate. In July 2021, FCA published its statement on ‘what the final rules for the sector will look like’ and then allowed firms to apply for authorisation. In July 2022, the legislation came fully into effect. HMT said COVID-19 and other pressures on parliamentary time delayed the process.
33. As we have set out, HMT arranged and had to consider responses to consultations. ‘Getting it Right’ says public bodies should plan carefully when introducing new policies and procedures; and decision making should take account of all relevant considerations.
34. We have seen HMT acknowledged that the transition period was necessary but had the potential for consumer harm if the period was too long. Its actions set out above seem reasonable and to have progressed in a timely way given the steps needed while FCA communications included efforts to minimise risks.
35. So, we see no indication of maladministration in how HMT handled the process. It took action to progress new legislation when it identified the need for it.
36. We recognise this will be disappointing for Mr and Mrs D, and that this outcome leaves them without the money they paid toward their funeral plan.
37. We hope this statement clearly explains why we saw HMT acted in line with the guidelines we have referred to.