Under legislation adopted by Parliament, financial firms are required to do extra checks on so called Politically Exposed Persons (PEPs). This follows global standards set by the international Financial Action Task Force and implemented by more than 200 jurisdictions. There have been concerns about how firms in the UK are meeting these requirements and so the FCA has reviewed how firms are treating PEPs.
The FCA found that most firms in its review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status. However all firms could improve.
The regulator has told firms that they should:
• ensure that their definition of a PEP, family member or close associate is tightened to the minimum required by law and not go beyond that;
• review the status of PEPs and their associates promptly once they leave public office;
• communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible;
• effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks;
• improve the training offered to staff who deal with PEPs.
Some firms have already started to make improvements following the change in January 2024, which made the legal starting point that UK PEPs and their associates present a lower level of risk than foreign PEPs. In a small number of cases, the FCA is instigating an independent and more detailed review of firms’ practices.
Sarah Pritchard, the FCA’s Executive Director of Markets and International, commented: “Public service naturally comes with greater scrutiny. But it must be proportionate and shouldn’t disadvantage people running for office or taking senior public roles, or their families. That requires a balancing act. Most firms try to get it right but there is more they can do. We’re following up with those firms that were getting the balance wrong to ensure they make changes.
“We have heard directly from some parliamentarians about the problems they and their families have faced. We have been clear where we expect firms to make improvements, including in how they communicate with their customers”.
The FCA is proposing to make changes to its guidance to:
• reflect the new legal starting point that UK PEPs should be treated as lower risk
• make clear that non-executive board members of civil service departments should not be treated as PEPs solely for that reason and
• give greater flexibility in who can approve or sign off PEP relationships within firms.
The guidance is open for consultation until 18 October 2024 and the FCA welcomes any further input. The FCA is clear, that where improvements have been identified, firms should implement those changes now and not wait for the final updated guidance to be published.
The FCA will continue to monitor how firms approach PEPs through its ongoing supervisory engagement and will act if needed. If PEPs are unhappy with their experience, they can complain to the firm and then the Financial Ombudsman Service. Some firms also have dedicated points of contact for PEPs.
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