10. Before we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the organisation, has got something wrong. We do this by comparing what should have happened with what did happen. After careful consideration we have not seen indications of failings in HM Treasury’s actions.
11. The FCA is an independent regulator, accountable to HM Treasury and Parliament. We cannot investigate FCA’s actions but can consider the administrative actions of HM Treasury in its oversight role.
HM Treasury actions
12. Mrs P complains that HM Treasury didn’t act as it should have on concerns put to it in 2017 and 2018 about the Provider.
13. Under the Financial Services Act 2012 the FCA must carry out an investigations 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’. If these conditions were met, HM Treasury could require the FCA to investigate.
14. However, until 2022 a funeral plan provider did not need to be authorised by the FCA if the money paid by the customer was to be held on trust for the purpose of providing a funeral, and the trust met other requirements. This means that before 2022, the Provider was exempt from FCA regulation.
15. When HM Treasury responded to Mrs P’s complaint it said it had no investigatory or enforcement powers of its own. It said it had acted on general concerns about the funeral plan market raised in the report and ‘responded quickly to bring the sector into regulation. However, the process…typically takes a number of years’. It said that in 2017 and 2018 HM Treasury staff said concerns about the provider should be reported to the FCA.
16. We have seen evidence to indicate HM Treasury passed on concerns it received about the provider to FCA in 2017/18 and it considered these matters.
17. As part of our work HM Treasury told us the 2017 consumer group report had 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. The publication of that report had led to the meeting at which HM Treasury had told the consumer group to refer its concerns to the FCA.
18. HM Treasury told us none of the 2017 and 2018 concerns related to a regulated activity given the provider was exempt from FCA regulation. The FCA also replied to Mrs P’s complaint to confirm that the Provider was exempt from FCA regulation and set out why that meant its activities were outside the FCA’s jurisdiction.
19. HM Treasury explained that in 2017 and 2018 funeral plan providers who were exempt from FCA regulation were still subject to indirect FCA oversight and other safeguards. It explained that trust fund managers had to be authorised by the FCA and so were 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.
20. It explained that around 95% of providers were self-regulated by the Funeral Planning Authority (FPA) voluntary code. The 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.
21. Our Principles of Good Administration include ‘Getting it right’ and say 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. We are satisfied that HM Treasury did not have the legal power to order FCA to investigate the Provider in 2017 and 2018 because it was exempt from regulation under the legal framework in place at the time. We have carefully considered HM Treasury’s actions and have not seen any indications of maladministration. We consider it acted appropriately by referring the concerns raised about the Provider to the FCA. We hope we have been able to clearly explain how we have reached our decision.
Delays with new legislation
22. Mrs L complains HM Treasury delayed progressing the new legislation.
23. HM Treasury said the financial services sector is evolving, and government may assess ‘whether new or existing activities need to be regulated. After the 2017/18 meetings, HM Treasury decided to bring all funeral plan providers into regulation.
24. To reach this decision it considered responses and evidence collated through a policy making process: 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’; and 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.
25. HM Treasury said it had to include a transition period to allow the 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.
26. HM Treasury’s consultation had 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. HM Treasury acknowledged that bringing a previously unregulated sector into regulation created a possibility some providers were not able to meet the threshold for authorisation.
27. From January 2021 Parliament considered HM Treasury’s proposed legislation, and from March 2021 the FCA had shared its own plans and consulted on how it planned to regulate. In July 2021 the 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. HM Treasury said the process had been delayed by COVID and other pressures on parliamentary time.
28. As we have set out, HM Treasury 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.
29. We have seen HM Treasury acknowledged the transition period was necessary but had the potential for consumer harm if the period was too long. We consider its actions, as set out above, are reasonable and were progressed in a timely way given the steps needed. Taking into account the evidence we have considered we have not found indication of maladministration in how HM Treasury handled the process of bringing all funeral plan providers into regulation.
30. We do not underestimate how important Mrs P’s complaint is to her and we are truly sorry to hear how she and her husband have been affected. She has told us how they paid for funeral plans in good faith and of the stress and worry they have experienced since the Provider went into administration. We understand Mrs P will be disappointed and frustrated by our decision. We hope we have clearly explained how we have reached it and why we have not seen indications of failings in HM Treasury’s actions.