Investigating the provider
12. 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 something has gone wrong.
13. Ms E complained HM Treasury did not act as it should have on concerns put to it in 2017 and 2018 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’. This means that if HM Treasury considered the conditions were met then it could require the FCA to investigate.
15. However, until 2022 a funeral plan provider was exempt from the requirement to be authorised by the FCA if it held the customer’s contributions for their funeral in a trust, and that trust met other requirements. In relation to this complaint it meant the provider was exempt from regulation by the FCA.
16. HM Treasury has explained it has no investigatory or enforcement powers of its own. It said in this instance it had acted on general concerns about the funeral plan market in the report. It added it had responded quickly to bring the sector into regulation but the process typically takes a number of years. It said that in 2017 and 2018 HM Treasury staff had explained to concerned members of the provider that they should report these to the FCA.
17. We have seen evidence indicating that in 2017/18 HM Treasury passed on concerns it received about the provider to FCA and that FCA considered those matters. HM Treasury told us the 2017 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.
18. The publication of that report had led to a meeting at which HM Treasury had told the consumer group to refer its concerns to the FCA. As far as directing the FCA to carry out an inquiry was concerned, HM Treasury said none of the 2017 and 2018 concerns related to a regulated activity given the provider was exempt from FCA regulation. The FCA also explained the provider in question was exempt from FCA regulation, and set out why that meant that its activities were outside the FCA’s jurisdiction.
19. HM Treasury also told us funeral plan providers would have been subject to indirect oversight by FCA in 2017/18. It made the point that even funeral plan providers backed by a trust, which were exempt from FCA regulation, were subject to indirect FCA oversight and other safeguards. Specifically: • 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.
20. Furthermore, about 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 in this complaint had become a registered member of the FPA in July 2019, which suggested the FPA believed it met the requirements of the code.
21. Our Principles say organisations should get things right. They do this by following the law, their statutory powers and duties, and any other rules governing the service they provide.
22. We are satisfied that HM Treasury did not have the legal power to order FCA to investigate the provider. This is because the provider was exempt from regulation under the legal framework at the time. HM Treasury acted appropriately by referring the concerns about the provider to FCA. Therefore, we can see no indication of maladministration in how HM Treasury acted.
Legislation
23. Ms E also complained HM Treasury delayed progressing new legislation and about how it managed that transition period.
24. More generally HM Treasury said the financial services sector was always evolving, and government may assess ‘whether new or existing activities need to be regulated. After the 2017/18 meetings, HM Treasury did decide to bring all funeral plan providers into regulation.
25. In doing so, HM Treasury considered responses and evidence collated through a policy making process. Specifically: • July 2018 – Call for Evidence ‘to ensure that the government understands the market and to gather further evidence’ that included meetings with providers; • June 2019 – Consultation on policy proposals and draft impact assessment on the proposed regulatory framework, to ensure ‘regulation is necessary, proportionate, and effective’, and • March 2020 – Consultation response and updated impact assessment – a summary of the feedback the government received and whether/how it was amending its approach.
26. HM Treasury explained 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.
27. 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.
28. 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.
29. Our Principles say public bodies should plan carefully when introducing new policies and procedures and decision making should take account of all relevant considerations.
30. As we have set out, HM Treasury arranged consultations and had to consider the responses. We have seen HM Treasury acknowledged the transition period was necessary but could potentially harm consumers if it was too long.
31. Its actions set out above were reasonable and done in a timely way given the steps needed. Additionally, FCA communications included efforts to minimise risks.
32. Although we see no indication of maladministration in how HM Treasury handled the process, we realise Ms E will be disappointed and frustrated by the position she is left in. We hope she finds the explanation we have provided helpful.