The Financial Conduct Authority (FCA) has recently mandated that financial institutions, including banks, payment firms, and lenders, enhance their protocols to ensure fair treatment of politically exposed persons (PEPs).
This directive comes in the wake of legislation passed by Parliament, requiring heightened scrutiny of PEPs to align with global standards set by the Financial Action Task Force, which is recognized in over 200 jurisdictions.
A thorough review by the FCA into the UK firms’ compliance with these standards revealed generally proportionate measures being applied to PEPs. The review highlighted that no firms refused accounts to PEPs based solely on their status. However, there is room for improvement across the board. The FCA has outlined several steps firms should take, including refining the definition of a PEP and their associates, prompt reassessment of a PEP’s status upon their departure from public office, and enhancing communication in compliance with the Consumer Duty.
Further enhancements following the legislative update in January 2024 indicate a shift in perspective, now treating UK PEPs and their associates as presenting a lower risk compared to their foreign counterparts. Despite these advancements, the FCA has initiated a few independent, detailed reviews of certain firms’ practices where discrepancies were noted.
Sarah Pritchard, the FCA’s executive director of markets and international, emphasized the need for balanced scrutiny.
She remarked, “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 has made it clear that improvements are expected immediately, rather than waiting for the new guidelines set to be finalized post-consultation in October 2024.
As part of its ongoing supervisory activities, the FCA will continue to monitor firms’ approaches to managing PEP relationships and will intervene if necessary. Affected individuals have the right to escalate their concerns to the Financial Ombudsman Service if dissatisfied with the handling of their cases. Some firms have also established dedicated points of contact for PEPs to streamline communication and address issues more effectively.
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