Dear CEO | Release Date: 20th September 2023
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has outlined its priorities for the Funeral Plans sector from 2023 to 2025 in its first sector-specific priority letter since assuming regulatory oversight on 29 July 2022. The FCA identifies this sector as part of the broader UK insurance market and underscores common risks and challenges impacting its stability and consumer trust.
Key Priorities and Expectations:
Financial Resilience and Adequate Resources: Firms must maintain adequate capital and liquidity to meet their obligations and ensure consumer confidence in their ability to deliver services, especially in light of economic pressures like inflation and the cost-of-living crisis.
Governance and Trust Management: The FCA stresses the importance of robust governance and trust management practices. It expects firms to have a diversified investment strategy for trust-backed products and effective management plans that account for inflation impacts on insurance-backed products.
Consumer Duty Implementation: A major focus is on embedding the Consumer Duty, which mandates that firms ensure fair value and appropriate consumer outcomes throughout the product life cycle. This includes a review of closed books to rectify any potentially harmful legacy product features.
Operational Resilience: Firms are required to strengthen their operational resilience, particularly in areas vulnerable to cyber-attacks and data protection risks. Adequate oversight and control of outsourced services are crucial.
Handling and Oversight of Appointed Representatives (ARs): With a significant portion of the market operating through networks of ARs, the FCA highlights the necessity for principals to maintain strict oversight and compliance with regulatory expectations, including new reporting requirements.
Consumer Support and Complaints Handling: Despite currently low levels of complaints, the FCA will monitor consumer support quality, especially in the context of economic challenges that might affect service levels and consumer satisfaction.
Addressing Unauthorised Business: The FCA expresses concern over ARs holding undeclared legacy funeral plan books, indicating a need for principals to intensify oversight and ensure all activities are authorised and compliant with regulations.
Strategic Actions and Compliance:
The FCA plans continuous monitoring and evaluation through data analysis and mystery shopping to assess how firms are implementing the Consumer Duty and managing their operational and financial risks. The FCA will engage with firms via roundtables to clarify expectations and assist with compliance challenges.
Immediate Actions for Firms:
Firms are urged to review their governance frameworks, investment strategies, and operational controls to align with FCA expectations and the Consumer Duty. They must also ensure that all promotional and operational activities are authorised and comply with FCA standards to prevent consumer harm and potential regulatory penalties.
In summary, the FCA’s communication delineates clear expectations for the Funeral Plans sector to prioritise consumer protection, financial resilience, and stringent regulatory compliance as key drivers for restoring and maintaining market confidence and integrity.