It also plans to make changes to its PEP guidance
The Financial Conduct Authority (FCA) has urged financial firms, including banks, payment firms, and lenders, to ensure parliamentarians, senior public servants, and their families are not treated unfairly.
Under legislation adopted by Parliament, financial firms are required to conduct extra checks on politically exposed persons (PEPs), following global standards set by the Financial Action Task Force and implemented by over 200 jurisdictions. Concerns have been raised about how UK firms are meeting these requirements, prompting the FCA to review their treatment of PEPs.
The FCA found that most firms did not subject PEPs to excessive or disproportionate checks, and none would deny them an account based on their status. However, the regulator noted that all firms could improve.
It advised firms to ensure their definition of a PEP, family member, or close associate is limited to the minimum required by law; promptly review the status of PEPs and their associates once they leave public office; communicate effectively with PEPs in line with the Consumer Duty, explaining the reasons for their actions where possible; consider the actual level of risk posed by the customer and ensure that information requests are proportionate to those risks; and improve training for staff dealing with PEPs.
Some firms have begun making improvements following the January 2024 change, which established that UK PEPs and their associates present a lower level of risk than foreign PEPs. In a few cases, the FCA is conducting an independent and more detailed review of firms’ practices.
“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,” said Sarah Pritchard (pictured), FCA’s executive director of markets and international. “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; and provide greater flexibility in who can approve or sign off PEP relationships within firms.
The guidance is open for consultation until October 18, 2024, and the FCA welcomes further input. The regulator has emphasised that firms should implement identified improvements immediately rather than waiting for the final updated guidance.
The FCA said it will continue to monitor how firms approach PEPs through ongoing supervisory engagement and will take action if needed. If PEPs are dissatisfied with their experience, they can complain to the firm and then to the Financial Ombudsman Service.
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