FCA warning on pre-paid probate plans could signal increased regulation

In England, Wales and Northern Ireland, probate is the legal right to deal with someone’s property, money and possessions when they die. In Scotland, this right is called ‘confirmation’. When designed and marketed appropriately, pre-paid probate plans have the potential to help people organise administration arrangements ahead of their death.

Last week, the FCA urged customers to consider whether these products meet their needs before buying them. “We have seen increased marketing of pre-paid probate plans in recent months, including from firms and individuals associated with funeral plan firms that we did not authorise, and whose customers lost money when they collapsed,” it said.

The FCA warned that pre-paid probate plans are not protected by the Financial Services Compensation Scheme (FSCS) and there is no requirement for money to be held in trust or backed by insurance. This means that should the plan provider fail, there is no guarantee that customers will receive their money back. Unlike funeral plans, there is no commission ban on the sale of pre-paid probate plans, which often increases their price.

“Your money may not be safe if the firm should fail as there are no rules requiring the money paid into plans to be held in trust or backed by insurance. The Financial Ombudsman Service cannot help resolve any complaints, but if you think a business has broken the law or acted unfairly, you can report them to Trading Standards,” the regulator added.

Hannah Ross of Pinsent Masons said the warning mirrored similar messaging about funeral plans before they became FCA-regulated in July last year. “This latest intervention could signal that officials at the Treasury and the FCA might be planning to include these plans within the FCA’s regulatory perimeter in the future. The FCA’s approach here reflects its focus on protecting vulnerable consumers against serious harm caused by bad conduct in financial services, as set out in its consumer investment strategy,” she said.

Ross, who previously worked at the FCA and drafted some of its existing funeral plan rules, added: “Leaving this area unregulated risks significant consumer harm on a large scale, which goes against the government and the FCA’s direction of travel towards consumer-focused outcomes, as illustrated by the upcoming Consumer Duty. The question is whether there is now the political appetite to bring this area into the FCA’s regulatory perimeter. If so, then much of the regulator’s rules and guidance for funeral plan providers, such as commission bans and FSCS protection, could eventually also apply here.”  

Jonathan Cavill of Pinsent Masons said: “The FCA is continuing to take an assertive supervisory stance to the areas it regulates – and trying to flex its muscles in areas it does not. While the consumer warning is strongly worded, it lacks any formal enforcement power. However, firms working in this space or advising consumers on this should be mindful of the FCA’s views, and potential future regulation, and should exercise caution before selling or advising on these plans.”