FCA launches review of treatment of Politically Exposed Persons

The FCA’s review will look carefully at firms’ arrangements for dealing with PEPs based in the UK. While the FCA cannot change the law putting in place the PEPs regime, the review will consider how firms are:

• applying the definition of PEPs to individuals
• conducting proportionate risk assessments of UK PEPs, their family members and known close associates
• applying enhanced due diligence and ongoing monitoring proportionately and in line with risk
• deciding to reject or close accounts for PEPs, their family members and known close associates
• effectively communicating with their PEP customers
• keeping their PEP controls under review to ensure they remain appropriate

The review will report by the end of June 2024. The FCA will take prompt action if any significant deficiencies are identified in the arrangements of any firm assessed. 

Thomas Cattee, head of white-collar crime, regulation and investigations, at Gherson Solicitors: “The FCA’s upcoming review of firms’ arrangements for dealing with politically exposed persons (PEPs) holds the potential for a welcome shift in the treatment of domestic PEPs.  While the FCA maintains that it cannot change the current PEP regime, and that the rules in place are designed to follow international standards and keep the financial system clean, there are clear indications that the FCA will focus on eliminating “unnecessary barriers for public servants and their families”.  This confirms the FCA’s awareness of the current potentially disproportionate application of the rules, the negative impact it can have on those designated (in some cases, incorrectly) as PEPs, as well as the ripple effects it can have on their family members and close associates.

This review, due to be finalised by June 2024, will likely lead to a more consistent and balanced approach to the application of the rules, thereby limiting unfortunate situations where “individuals may find themselves excluded from products or services through no fault of their own”.

Firms will need to re-assess and potentially modify their existing compliance frameworks, particularly in relation to PEPs, so as to ensure compliance with the FCA’s guidance and effectively implement the PEP – and wider AML – regime

Sarah Pritchard, Executive Director of Markets at the FCA, said: “These rules follow international standards and are designed to keep the financial system clean, free from corruption and guard against financial crime. It’s important that they are implemented proportionately and don’t create unnecessary barriers for public servants and their families. We have already persuaded some firms to improve their approach and we will use this review to identify if we need to provide further guidance to firms.”

Under legislation adopted by Parliament, financial firms are required to do extra checks on political figures, their families and close associates. More than 200 countries and jurisdictions have signed up to the standards set by the Financial Action Task Force. However, if rules are applied inappropriately by firms, then individuals may find themselves excluded from products or services through no fault of their own.

The FCA has already taken a number of steps to remind the industry and specific firms that they should follow its guidance on implementing current rules, and some firms have already changed their approach as a result. Individuals can also raise concerns with their financial institution or the Financial Ombudsman Service.