Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2020

Baroness Bowles of Berkhamsted Excerpts

Wednesday 6th January 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, as other noble Lords have mentioned, around 2016 and 2017 there began to be reports about the mis-selling of funeral plans. The concern mainly focused on the plans not covering the cost of a funeral, the magnitude of fees taken by introducers and plan providers, and the inflexibility of plans and cancellation costs. The concerns have also come to light during a period when funeral costs have escalated, with elderly individuals being sold plans based on spiralling costs. Those costs are not inevitable—indeed new, cheaper funeral arrangements are now coming to market.

At times, the hard sell takes place door to door, but the pressure to make funeral provision is all around in advertisements. Even when this is from good providers, it adds to pressure for people to “do something” and spare their hard-pressed family from financial concern at a time of distress, making them easy targets.

Like other noble Lords, I have received the brief from the Funeral Planning Authority, and I thank it for the work it has done. I recognise that the new authorisation arrangements are an existential threat to it. That seems to be acknowledged in paragraph 12.2 of the Explanatory Memorandum, which says that the regulatory cost will be partially offset by the fees that the majority of providers currently pay to the existing voluntary regulator.

The current terms for the FPA are to give 180 days’ notice, which means that the FPA may well cease before the FCA becomes responsible; it might not hang out for the 18 months if it has people resigning. What effect does the Minister think that will have? Will it make for some kind of lacuna?

The FCA will establish an authorisation procedure to commence in summer 2022 and will consult in spring this year. There’s the rub: we really do not know what it will do. It will all depend on that consultation. The only information at present on the FCA’s website is that it will look at outcomes, ensuring that consumers get the product paid for, and that

“funds are looked after and used responsibly.”

I await with interest how that will roll out. For example if funeral costs become more competitive, would funds being used responsibly prevent paying over the going rate at the time and even result in a cash payment, or is that merely a statement about the prudential soundness of the provider? Does it extend to blocking excessive fees? The problem is that we do not yet know any significant detail.

At present, all providers have to use a trust or an insurance policy, otherwise they would already come under FCA regulation, so what other kind of prudential supervision does the Minister envisage and where has it gone wrong such that it is not sufficient? Or do all the problems lie with the selling side, such as the pressures, commissions and descriptions? If that is the case, it is a little disappointing that the FCA site does not say something about sales conduct, other than getting the product paid for.

The SI removes the regulatory exemption for having funds in trust or an insurance policy so that everyone becomes regulated. At the same time, that seems to open up other forms of prudential security. I wonder what the effect of that will be. In the light of the FCA website comments, does it mean an expectation that funds will be invested and secured differently?

Of course we will let the SI proceed and I broadly welcome it, but I share some of the reported concerns. Like so much of the delegated powers we give to our regulators, the fact is that we really do not know what will happen, where the improvements will be or what we can do if they are insufficient. We of course have confidence in the FCA, but it is built entirely on that. We have no assurance in the SI or in any direction to the FCA that aggressive door-to-door sales must cease. The Treasury has made some provision, with the financial ombudsman taking over the role of dispute resolution, which would have been done by the FPA, but it is not really a satisfactory vision of the future. I would be far happier if there had been more specific guidance to the FCA about those things that have to stop, such as unreasonable fees, profiteering and door-to-door selling.

I heard what the Minister said in introducing the SI about regulation at the point of sale. That is good, but will it really stamp out bad practice? As the Minister said, it is only the 5% who have not taken up the voluntary authorisation. How easy will it be to find that and reduce it to zero?