The FCA has instructed financial firms, including banks, payment companies, and lenders, to ensure that parliamentarians, senior public servants, and their families are treated fairly.
According to legislation adopted by Parliament, financial firms must perform additional checks on politically exposed persons (PEPs) in line with global standards set by the international Financial Action Task Force, implemented by over 200 jurisdictions.
Concerns have arisen about how UK firms are meeting these requirements, prompting the FCA to review their treatment of PEPs. The review found that most firms did not subject PEPs to excessive checks, and none denied them accounts based on their status. However, improvements are necessary. The FCA has advised firms to:
- Define PEPs, their family members, and close associates as per the minimum legal requirement.
- Promptly review the status of PEPs and their associates once they leave public office.
- Communicate effectively with PEPs, explaining their actions in accordance with the Consumer Duty.
- Assess the actual risk posed by customers and ensure information requests are proportionate.
- Enhance training for staff handling PEPs.
Some firms have begun making improvements following a change in January 2024, which established that UK PEPs and their associates present a lower risk than foreign PEPs. In a few cases, the FCA is conducting an independent 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 changes to its guidance to:
- Reflect the new legal starting point that UK PEPs should be treated as lower risk.
- Clarify that non-executive board members of civil service departments should not be treated as PEPs solely for that reason.
- Provide 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 further input.
The FCA emphasizes that firms should implement necessary improvements immediately, without waiting for the final updated guidance. The regulator will continue to monitor firms’ approaches to PEPs and take action if needed.
If PEPs are dissatisfied with their experience, they can file a complaint with the firm and then the Financial Ombudsman Service. Some firms also have dedicated points of contact for PEPs.
By FCCT Editorial Team
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