11. Before we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the organisation, in this case HM Treasury, has got something wrong. We do this by comparing what should have happened with what did happen. We have done that and not found indications that something has gone wrong.
HM Treasury’s action in response to concerns raised about the Provider
12. The FCA is an independent regulator, accountable to HM Treasury and Parliament. The Ombudsman cannot investigate the FCA’s actions but can consider the administrative actions of HM Treasury in its oversight role of the FCA.
13. Mr and Mrs B complain HM Treasury did not act as it should have on concerns put to it in 2017 about the Provider.
14. Under the Financial Services Act 2012, the FCA must carry out an investigation where it appears to it that ‘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’.
15. If HM Treasury considered these conditions had been met, it could instruct the FCA to investigate.
16. However, until 2022 a funeral plan provider was exempt from the requirement to be authorised by the 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. This applied to the Provider Mr and Mrs B paid in to which meant it was exempt from FCA regulation.
17. In November 2022, HM Treasury replied to Mr and Mrs B’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 consumer group report and ‘responded quickly to bring the sector into regulation. However, the process (…) typically takes a number of years’.
18. HM Treasury also said that in 2017/18, its staff told the groups referred to in paragraph seven that concerns they brought to it about the Provider should be reported to the FCA. We have seen evidence to indicate HM Treasury also passed on concerns it received about the provider to the FCA in 2017/18 and that the FCA considered those matters.
19. HM Treasury told us the 2017 consumer group report had highlighted concerns about the 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.
20. The publication of that report led to the meeting at which HM Treasury told the consumer group to refer its concerns to the FCA. As far as directing the FCA to carry out an inquiry, HM Treasury said none of the 2017 and 2018 concerns related to a regulated activity because the Provider was exempt from FCA regulation.
21. We have seen evidence the FCA replied to complaints from consumers about the Provider. In these responses, the FCA confirmed the Provider was exempt from FCA regulation and explained why that meant its activities were outside the FCA’s jurisdiction.
22. HM Treasury has also told us about indirect oversight funeral plan providers would have been subject to by FCA in 2017/18.
23. HM Treasury has said that even funeral plan providers backed by a trust, which meant they were exempt from FCA regulation, were subject to indirect FCA oversight and other safeguards in 2017 and 2018. This included that the trust fund manager had to be authorised by the 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. Also, about 95% of providers were self-regulated by the Funeral Planning Authority (FPA) voluntary code.
24. 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 became a registered member of the FPA in July 2019, which suggested the FPA had considered it met the requirements of the code.
25. Our Principles of Good Administration include ‘Getting it right’, this says 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.
26. Following careful consideration of the above, we are satisfied HM Treasury did not have the legal power to order the FCA to investigate the Provider because it was exempt from regulation under the then legal framework. We consider HM Treasury acted appropriately by referring the concerns brought to it about the Provider to the FCA. For these reasons, we see no indication of maladministration in how HM Treasury acted.
27. Mr and Mrs B have told us they invested in their funeral plans in good faith and they have since suffered significant distress. We are sorry to hear of what they have been though. We hope we have been able to explain why we will not take any further action here.
HM Treasury’s progression of new legislation
28. Mr and Mrs B complain HM Treasury delayed bringing in the new legislation for funeral plan providers. HM Treasury said the financial services sector is always evolving, and government may assess whether new or existing activities need regulation. After the 2017/18 meetings, HM Treasury decided to bring all funeral plan providers into regulation.
29. To do this, HM Treasury 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. 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.
31. HM Treasury’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. 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.
32. 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 allowed firms to apply for authorisation. In July 2022, the legislation came fully into effect. HM Treasury said COVID-19 and other pressures on parliamentary time delayed the process.
33. As we have set out, HM Treasury arranged and had to consider responses to consultations. Our Principles on ‘Getting it Right’ say 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 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, seem reasonable and to have progressed in a timely way given the steps needed while FCA communications included efforts to minimise risks.
35. For these reasons, we see no indication of maladministration in how HM Treasury handled the process. We consider it acted to progress new legislation when it identified the need for it. We will therefore not take this complaint any further.
36. We recognise Mr and Mrs B will be disappointed with our decision. We hope we have been able to clearly explain why we consider HM Treasury acted in-line with the relevant guidelines. We thank Mr and Mrs B for bringing their complaint to us to consider.