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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2022-07-29.

FPCOB 3.1 2Trust and insurance arrangements: structure provisions

2Application: general

FPCOB 3.1.1R

Application: subsisting funeral plans

FPCOB 3.1.2G

1The FCA encourages firms which carry out subsisting funeral plans underpinned by existing trust arrangements or insurance contracts, and the relevant trustees and insurers, to work together to seek to amend those arrangements to bring them into line with the arrangements in this chapter.

FPCOB 3.1.3R

1In relation to a subsisting funeral plan:

  1. (1)

    under which the funeral plan provider undertakes to secure that sums paid by the customer under the contract will be held on trust for the purpose of providing the funeral; and

  2. (2)

    where the trust instrument or such contract have been substantively amended on or after 2 March 2021 so that their terms (post-amendment) meet any of the applicable requirements in this section or the funeral plan resolution rules in FPCOB 16,

a firm carrying out that contract as provider must, to the extent within its powers, comply with this section from 29 July 2022 or the point in time that the amendment is made if later.

Primary purpose

FPCOB 3.1.4R

1The rules and guidance in this section must be construed in accordance with the primary purpose.

FPCOB 3.1.5R

1The primary purpose is to ensure that funeral plan contracts are underpinned by robust trust or insurance arrangements that will enable the provision, at the relevant time, of funerals in accordance with the terms of the funeral plan contracts.

Arrangements underpinning funeral plan contracts

FPCOB 3.1.6R

1In relation to each funeral plan contract, a funeral plan provider must either:

  1. (1)

    purchase, or arrange the purchase of, a contract of insurance from an authorised insurer on the life of the covered individual that is sufficient for the purpose of providing the agreed funeral; or

  2. (2)

    arrange for such proportion of sums paid by the customer under the funeral plan contract that is sufficient for the purpose of providing the agreed funeral to be held on trust,

as soon as reasonably practicable after receipt of monies from the customer, appointed representative or funeral plan intermediary.

FPCOB 3.1.7G

1When purchasing a contract of insurance or determining what proportion of sums paid by the customer under the funeral plan contract should be held on trust, a funeral plan provider should take into account its obligations under FPCOB 7 to provide a funeral under an instalment payment funeral plan before all instalments have been paid.

Requirements in relation to contracts of insurance

FPCOB 3.1.8R

2For the purpose of FPCOB 3.1.6R(1), the contract of insurance must contain terms that will deliver the following objectives:

  1. (1)

    clearly identifies the policyholder under the contract of insurance;

  2. (2)

    restricts the circumstances in which the insurer can make a payment under the contract to:

    1. (a)

      payments made to the funeral plan provider or funeral services provider for the purpose of delivering a covered individual’s funeral, which must only be paid after receipt and verification of the covered individual’s death certificate, or Certificate for Burial or Cremation (GR021 in Northern Ireland) where a death certificate is not available, in accordance with FPCOB 3.1.11R(2);

    2. (b)

      providing a customer refund; or

    3. (c)

      on the failure of the funeral plan provider or if it is in default, payments to a customer or covered individual or (on the covered individual’s death) to their next of kin or in accordance with a determination of the FSCS;

  3. (3)

    will deliver all applicable outcomes in the funeral plan resolution rules;

  4. (4)

    the contract of insurance will not terminate upon failure of the funeral plan provider;

  5. (5)

    requires the insurer to co-operate with the FCA, the FSCS and any insolvency practitioner appointed, or proposed to be appointed, to the funeral plan provider in seeking to achieve the primary purpose on a failure or potential failure of the funeral plan provider; and

  6. (6)

    where the whole, or relevant part, of the business of the funeral plan provider has been transferred to a new funeral plan provider, the insurer may substitute the new provider in place of the original provider.

Requirements in relation to trusts

FPCOB 3.1.9R

2For the purposes of FPCOB 3.1.6R(2), the trust must be established by a written instrument which contains terms that will deliver the following objectives:

  1. (1)

    that the assets are held on trust to make the payments set out in (3), and, when there are no more payments due or potentially due under that paragraph, upon trust for the funeral plan provider;

  2. (2)

    that the assets held on trust are kept segregated from any assets belonging to the funeral plan provider;

  3. (3)

    that the trustees are required to make the following payments (and are not permitted to make any other payments) out of the trust:

    1. (a)

      payments made to the funeral plan provider or funeral services provider for the purpose of delivering a covered individual’s funeral, which must only be paid after receipt and verification of the covered individual’s death certificate, or Certificate for Burial or Cremation (GR021 in Northern Ireland) where a death certificate is not available, in accordance with FPCOB 3.1.11R(2);

    2. (b)

      essential payments for the operation of the trust (arising out of obligations owed by either the trustees or the funeral plan provider), limited to taxes, trustee fees, actuary fees, custodian fees, legal fees, trust administration fees, audit fees, investment management fees (including transaction fees), trustee liability insurance, and costs of insurance arrangements to provide a funeral on death within the instalment term;

    3. (c)

      in the event of the insolvency of the funeral plan provider, payments to meet a claim by an insolvency practitioner against the assets held on trust, in priority to all other claims against those assets, to meet their costs properly attributable to:

      1. (i)

        causing the provider to continue providing or arranging funerals under existing funeral plan contracts;

      2. (ii)

        effecting a transfer of those contracts to another funeral plan provider; or

      3. (iii)

        making payments under (3)(e);

    4. (d)

      providing a customer refund;

    5. (e)

      on the failure of the funeral plan provider or if it is in default:

      1. (i)

        except where arrangements to secure continuity (whether or not involving the FSCS) of funeral plan contracts have been implemented:

        1. (A)

          payments to each customer or covered individual or (on the covered individual’s death) to their next of kin of the amount that the trustees consider is a reasonable estimate of the cost, at the time of the failure or declaration of default, of purchasing a replacement funeral plan contract on terms corresponding, in all material respects, to the original funeral plan contract; or

        2. (B)

          if the trust assets are insufficient to pay each customer or covered individual the full amount required by (A), a proportional amount of the trust assets based on that full amount required by (A); or

      2. (ii)

        payments in accordance with a determination of the FSCS;

    6. (f)

      on a transfer by the funeral plan provider of all or part of its funeral plan business to another funeral plan provider, payment to the trustees of another trust set up by the other provider or to purchase insurance contracts, as directed by the funeral plan provider, provided that an actuary, who is a fellow of the Institute and Faculty of Actuaries, has certified the sufficiency of the arrangements for the purpose of providing the agreed funerals under the funeral plan contracts transferred and any contracts which are not transferred;

    7. (g)

      surpluses to a funeral plan provider, where FPCOB 3.2.12R applies;

  4. (4)

    will deliver all applicable outcomes in the funeral plan resolution rules;

  5. (5)

    more than half of the trustees must be unconnected with the funeral plan provider;

  6. (6)

    the trustees must appoint, or have appointed, an independent fund manager who is an authorised person who has permission to carry on an activity of the kind specified by article 37 of the Regulated Activities Order, and who is a person that is unconnected with the funeral plan provider, to manage the trust assets;

  7. (7)

    annual accounts in respect of the assets and liabilities of the trust must be prepared, and audited by a person who is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006;

  8. (8)

    the trustees must send a copy of the annual accounts to the funeral plan provider to facilitate its financial reporting, and must otherwise co-operate with, and provide information to, the funeral plan provider to facilitate compliance with its obligations under the rules (as amended from time to time);

  9. (9)

    the trustees must co-operate with the FCA, the FSCS and any insolvency practitioner appointed, or proposed to be appointed, to the funeral plan provider in seeking to achieve the primary purpose on a failure or potential failure of the funeral plan provider;

  10. (10)

    that the written instrument can and must be amended if and to the extent that the funeral plan provider is required to seek an amendment by the FCA (by a rule or requirement);

  11. (11)

    where the whole of the business of the funeral plan provider has been transferred to another funeral plan provider, the trust may make provision for the substitution of the new provider in place of the original provider;

  12. (12)

    an acknowledgement by the trustee that the funeral plan provider has been appointed by customers as an agent with a duty to enforce their rights under the trust (see FPCOB 16.1.5(3)(d)).

Note: Guidance on the preparation of a trust deed to meet these objectives is in FPCOB 3 Annex 1.

FPCOB 3.1.10R

2For the purposes of FPCOB 3.1.9R(5) and FPCOB 3.1.9R(6), a person is unconnected with the funeral plan provider if that person is a person other than:

  1. (1)

    the funeral plan provider;

  2. (2)

    a member of the same group as the funeral plan provider;

  3. (3)

    a director, other officer or employee of the funeral plan provider, or of any member of the same group as the funeral plan provider;

  4. (4)

    a partner of the funeral plan provider;

  5. (5)

    a close relative of a person falling within sub-paragraphs (1), (3) or (4);

  6. (6)

    an agent of any person falling within sub-paragraphs (1) to (5); or

  7. (7)

    any other person whose business or domestic relationship with the funeral plan provider (or other person in sub-paragraphs (1) to (6)) might reasonably be expected to give rise to a community of interest between them and the funeral plan provider which may involve a conflict of interest in dealings with third parties.

Safeguarding – obligations in relation to money received from a customer, trust or insurance provider

FPCOB 3.1.11R

2A funeral plan provider must:

  1. (1)

    make arrangements to safeguard monies it has received:

    1. (a)

      from a customer, appointed representative, or funeral plan intermediary under a funeral plan contract, and which are sufficient for the purpose of providing the agreed funeral, between receipt and applying the monies in accordance with FPCOB 3.1.6R;

    2. (b)

      pursuant to a contract of insurance prior to delivering a covered individual’s funeral, providing a customer refund, or pursuant to FPCOB 3.1.8R(2)(c); or

    3. (c)

      from a trust prior to delivering a covered individual’s funeral, providing a customer refund, or pursuant to FPCOB 3.1.9R(3)(e),

    to ensure that such monies are not at any stage, including on its failure, assets of the funeral plan provider;

    1. (2)

      provide to an insurer or trustee, as applicable, a copy of the covered individual’s death certificate, or Certificate for Burial or Cremation (GR021in Northern Ireland) where a death certificate is not available, prior to, or at the time of, requesting money under the terms of an applicable contract of insurance or in accordance with the terms of a trust for the purpose of delivering or arranging a funeral; and

    2. (3)

      pay monies received from an insurer or a trust for the funeral of a covered individual to the funeral services provider that has agreed to provide a funeral for the covered individual as soon as reasonably practicable following receipt.

FPCOB 3.1.12G

2Examples of how the safeguarding required by FPCOB 3.1.11R may be achieved include:

  1. (1)

    where monies are contractually owed to the funeral plan provider under the funeral plan contract, requiring payments made by a customer under a funeral plan contract to be made directly to the insurer or the trustee, as applicable;

  2. (2)

    requiring payments used to deliver a covered individual’s funeral and payments to a customer to be provided by the insurer or trustee, as applicable, directly to the funeral services provider, or the customer, as appropriate; and

  3. (3)

    the funeral plan provider holding the received monies on trust for the benefit of the customer. This arrangement would need to include keeping the monies segregated from any other monies held by the funeral plan provider and keeping an appropriate record of these monies.

Systems and controls

FPCOB 3.1.13G

1Firms are reminded of Principle 3 which provides that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

FPCOB 3.1.14R
  1. (1)

    1A firm must ensure that the systems and controls, including procedures and arrangements, used to comply with the requirements in this chapter are adequate, effective and appropriate for the scale and nature of its business.

  2. (2)

    Sub-paragraph (1) applies in particular to systems and controls concerning:

    1. (a)

      the adequacy of the trust and insurance arrangements that a firm must put in place in accordance with FPCOB 3.1.6R;

    2. (b)

      whether a proposed price for a funeral plan contract is likely to lead to, as applicable, an under-funded trust arrangement or an insufficient insured sum to provide the funeral contracted for; and

    3. (c)

      the price of the funeral plan contract, bearing in mind the cost of the funeral to the firm.

FPCOB 3.1.15R

1A firm’s systems and controls must be developed to:

  1. (1)

    factor in the risk of inflation when considering pricing decisions; and

  2. (2)

    if applicable, factor in the volatility of trust assets.