They will also be brought with the remit of the Financial Ombudsman Service if complaints are made.
The Government has been concerned by reports from Citizens Advice Scotland and Fairer Finance that some consumers get a raw deal from the plans and are often unclear about what they are buying. Many find their plan does not cover the full cost of a funeral.
In its response to an 18-month industry consultation, the Treasury said regulation was not ‘robust’ enough and has asked the FCA to regulate the market to prevent consumer detriment.
Regulation is currently carried out mainly by the Funeral Planning Authority, a self-regulatory organisation. The Government recognised the role the FPA has played in “driving up standards” but said statutory regulation will be better for consumers.
The Government plans to lay a Statutory Instrument and memorandum before Parliament to introduce the change.
The FCA will consult on proposals for regulating pre-paid funeral plan providers and intermediaries who sell pre-paid funeral plans. It is likely to be 18 months before the new FCA regulatory framework is in place.
The Government says consumers may prefer to use FPA-registered providers until the new FCA regulation comes into effect.
Louise Eaton-Terry, funeral cost expert at Royal London, welcomed the move.
She said: “With the high cost of funerals forcing bereaved families into an average debt of £1,990, a funeral plan allows consumers to secure their funeral in advance and protect against future price increases. The services covered by funeral plans vary among providers which isn’t always clear.
“Many consumers are unaware that their plan might not cover the full cost of the funeral, which can result in grieving loved ones being left with unexpected extra charges. The Government legislating to regulate pre-paid funeral plans is welcome news and will offer consumers greater protection.”