FCA Urges Banks to Ensure Fair Treatment of UK Lawmakers and Their Families

The U.K.’s Financial Conduct Authority (FCA) has called on banks and financial institutions to enhance their efforts to ensure that U.K. lawmakers and their families are not treated unfairly. On Thursday, the FCA published a review of its findings on the effectiveness of firms in adhering to its guidance on the treatment of politically exposed persons (PEPs) for anti-money laundering (AML) purposes.

The FCA defines PEPs as lawmakers, their close family members, and close associates, whose positions place them at a higher risk of utilizing financial tools to facilitate money laundering. This review was prompted by the Nigel Farage “debanking” scandal, where NatWest subsidiary Coutts closed the U.K. politician’s investment accounts, potentially due to his right-wing political views.

The FCA's review found that most firms did not subject PEPs to excessive or disproportionate checks and that none would deny them an account based on their status. However, the regulator noted in an accompanying press release that it is "instigating an independent and more detailed review of firms’ practices" in a small number of cases.

According to a law adopted by Parliament, financial institutions are required to conduct additional checks on PEPs, following "global standards set by the international Financial Action Task Force and implemented by more than 200 jurisdictions," the FCA stated.

In its review, the FCA recommended several areas for improvement in PEP checks, including:

- Ensuring a financial institution’s definition of a PEP, family member, or close associate "is tightened to the minimum required by law and not go beyond that";

- Reviewing the status of PEPs and their associates "promptly once they leave public office";

- Communicating to PEPs "effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible";

- Considering the actual level of risk posed by the customer and ensuring that "information requests are proportionate to those risks"; and

- Improving the training offered to staff who deal with PEPs.

As part of its review, the FCA collected surveys from 65 parliamentarians about their experiences with U.K. financial institutions.

"We have heard directly from some parliamentarians about the problems they and their families have faced," said Sarah Pritchard, FCA executive director, markets and international, in the release. "We have been clear where we expect firms to make improvements, including in how they communicate with their customers."

The FCA has amended its guidance on assessing the AML risks posed by PEPs in three ways and is seeking responses from affected institutions on the new guidance until October 18. The new guidance specifies that U.K. PEPs should be treated as lower risk compared to foreign PEPs; non-executive board members of civil service departments should not be classified as PEPs solely for that reason; and financial institutions should "give greater flexibility in who can approve or sign off PEP relationships within firms."

By fLEXI tEAM