FCA Urges Fair Treatment of Politically Exposed Persons in Financial Firms

The UK’s Financial Conduct Authority (FCA) has urged financial firms, including banks, payment firms, and lenders, to ensure that politically exposed persons (PEPs) are not treated unfairly. The regulator emphasized the necessity of specific oversight for PEPs due to their roles but insisted this oversight should be balanced and proportionate.

A detailed review of 15 banks revealed areas needing improvement, such as staff training and communication with PEP customers, unclear rationales for PEP risk ratings, and inadequate arrangements for reassessing PEP classifications after they leave public office. Additionally, the definitions of PEPs and related categories were found to be too broad, exceeding regulatory requirements.

Financial crime experts noted that the FCA’s comments underscore the need for nuanced financial crime compliance. PEPs include parliamentarians like MEPs, senior public servants, and their families.

Controversy surrounding the interaction of UK financial institutions with PEPs surfaced last year when Alison Rose, CEO of Coutts’s owner NatWest, discussed Nigel Farage’s bank account with a BBC journalist, leading to her resignation and the subsequent departure of Coutts CEO Peter Flavel.

In a statement, the FCA said, “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 review found that most firms did not subject PEPs to excessive or disproportionate checks, and none would deny them an account based solely on their status. However, the FCA noted, “all firms could improve.”

The FCA recommended tightening the definition of a PEP to the minimum required by law and ensuring the status of PEPs and their associates is promptly reviewed once they leave public office. Improved training for staff handling PEPs was also advised.

The regulator is consulting the industry on whether UK-based PEPs should qualify for a lower risk status and considering special protections for non-executive civil service members, who should not be defined as PEPs solely based on their roles. The consultation will close on October 18, but the FCA encouraged firms to implement improvements before the final guidance is issued.

Ted Datta, a financial crime compliance specialist at Moody’s, stated that the FCA’s latest comments “highlight the need for nuanced financial crime compliance.” He added, “PEPs are not inherently bad actors, but their positions of influence necessitate enhanced scrutiny to mitigate risks of bribery, corruption and money laundering. The FATF guidelines are clear: heightened risk doesn’t justify unfair treatment.”

Datta explained that financial institutions must balance thorough due diligence with fair access to services for PEPs and their associates, requiring a sophisticated, risk-based approach that adapts to regional regulations and real-time changes. “Improved awareness is crucial for navigating these intricacies and upholding both integrity and fairness in financial services,” he concluded.

By fLEXI tEAM