Shares in Dignity PLC (LON:DTY) withered on Monday after an investigation by HM Treasury concluded that the funeral plan sector should be regulated by the Financial Conduct Authority.
The Treasury pointed to “high pressure and misleading tactics” in the current market for pre-paid funeral plans and said the FCA will design a “new, robust framework to bring regulation in line with other financial products, such as insurance”.
READ: Dignity prays for more deaths as it warns of multimillion-pound hit to this year’s profits
Under the new regulation, the FCA’s oversight will also include the administration of owners’ money after they have purchased a funeral plan, handling of claims and payment of plan contracts. Any funeral operators found breaching the regulations could potentially have their authorisation revoked, face fines and even criminal charges.
Having long called for more regulation in the sector, funeral services provider Dignity said it welcomed the decision, with chief executive Mike McCollum saying the company “has long led the industry in best practice”.
Dignity and its affiliates sold 58,000 plans out of the total market of 177,000 pre-paid plans sold last year.
Broker Liberum said the Treasury’s decision was as expected and was a sensible move: “In particular, it should limit the hard-sell techniques of some companies”.
In a note to clients, Liberum's analysts pointed out that regulation “should reduce competition in the sector, albeit that it is likely to reduce the overall sales given less promotional activity and as funeral prices are unlikely to increase”, but there will inevitably be increased costs across the industry and material restrictions on the ability to promote products will be likely.
“The Co-op and Dignity are clearly at the right end of the spectrum of providers when it comes to marketing. However, they will also have to change practices in order to avoid any semblance of mis-selling as well as the persistence of follow-up activity,” they said.
Nevertheless, Dignity shares fell 4.4% to 659p by mid-morning on Monday.