Providers and distributors of pre-paid funeral plans now have just months to consider how FCA regulation impacts their business and begin to make the necessary preparations, with the subsequent submission of an FCA application to achieve successful authorisation by 29 July 2022 (“the effective date”).
On 2 March 2021, the FCA published Consultation Paper (CP 21/4), which sets out the proposed approach to regulation for firms operating in the pre-paid funeral plan market. This does not just impact the large providers who place money into a trust or life insurance policy, but also extends to those intermediaries who may advise on or distribute such products, including financial advisers, funeral directors and will writers.
The Consultation Paper sets out the draft rules and highlights that firms not appropriately authorised by the effective date will need to cease trading. With this in mind, firms are strongly encouraged by the FCA to submit their applications from September 2021, which is the anticipated date from when the gateway will open to enable such submissions. The FCA clearly state that firms that submit after November 2021 will likely incur a higher application fee. Moreover, approval is not guaranteed and is dependent on ‘good quality applications’ being submitted.
From our experience, the key to a successful FCA application is all in the planning. Firms will need to demonstrate a robust compliance infrastructure at the time of submission, as the FCA will focus on whether a firm is ‘ready, willing and organised’ to be granted authorisation. Therefore, time is of the essence to address business practices that the draft rules are proposed to prevent, limit or address. This is most pertinent in regard to remuneration structures, product governance, sales processes, instalment payment options, disclosures, prudential risk, wind down and resolution planning.
Some key practical considerations to be addressed within the FCA application pack are summarised below at a high level.
||FCA application: practical considerations
|Senior Managers and Certification Regime (SM&CR)
Most providers are likely to be categorised as a ‘Core SM&CR’ firm, therefore, individual Senior Management applications will need to be prepared and supported by a documented Statement of Responsibility.
Firms will need to identify who their Senior Managers are and allocate certain Prescribed Responsibilities. Again there are particular actions that may be overlooked prior to submission such as conducting a criminal records check, obtaining a regulatory reference and preparing particular documentation to support a Senior Managers application i.e. skills gap analysis and learning and development plan. These arrangements take time to complete and the design of SM&CR processes should underpin the robust governance arrangements in place, this too will need to be fully articulated within the regulatory business plan submitted.
||Firms will need to submit a copy of their Vulnerability Policy as part of the FCA application pack. The FCA recently published its Finalised Guidance (FG 21/1) for the fair treatment of vulnerable customers. We recommend that this is reviewed to ensure that firms’ processes across the customer journey are designed to take account of this guidance.
|Compliance Monitoring Programme
||Firms will also need to submit a copy of their Compliance Monitoring Programme. This should be risk based and reflective of the regulatory requirements applicable. Firms will need to have an independent compliance function in place and the application must clearly define key systems and controls to maintain regulatory compliance once authorised.
|Financial Crime Prevention
||Neither providers or distributors will need to formally appoint a Money Laundering Reporting Officer (SMF 17), however, providers will still need to take account of the FCA’s financial crime guide. Firms will also need to describe how financial crimes risks are managed, particularly across its anti-money laundering and fraud prevention policies and procedures.
||Complaints will be within the jurisdiction of the Financial Ombudsman Service (FOS) from authorisation, and firms must submit copy of their complaints handling procedure to the FCA. The FCA rules (DISP) prescribe standards to be adopted, including time-limits and certain disclosures in regard to the FOS. A detailed review of complaints handling is recommended prior to submission to ensure that complaints policies and procedures are in line with DISP.
||Core capital and solvency obligations will need to be reflected in financial projections submitted to demonstrate that the firm holds adequate resources to mitigate against a firms’ prudential risk. Identifying capital requirements will, in part, factor a firm’s projected ‘annual income’, which is further defined by the FCA. Workings will need to be assessed in reference to acceptable forms of capital and firms must also demonstrate how risks are assessed and quantified within the application.
BDO have assisted numerous financial services firms with reviewing or preparing their FCA authorisation packs for submission, as well as supporting firms once authorised as part of our Retained Compliance Services. Our Financial Advisory Services team understand the challenges faced, have a working knowledge of the pre-paid funeral market in scope of the FCA proposals and can support firms to successful implementation.
If you would like further information, please contact Richard Barnwell or Lucy Gallagher.