FCA Initiates Review of Treatment of Politically Exposed Persons (PEPs) by Financial Firms

The Financial Conduct Authority (FCA) has embarked on a comprehensive review of the treatment of domestic Politically Exposed Persons (PEPs) by financial services firms in the UK. This initiative aims to assess and enhance the handling of PEPs, who play a critical role in public service, by financial institutions.

The FCA's review will scrutinize how financial firms manage PEPs based in the United Kingdom, emphasizing that while the regulator cannot alter the legislative framework governing the PEPs regime, it can evaluate how firms are implementing these regulations. Key aspects under examination include:

1. Definition of PEPs: The review will assess how financial firms are applying the definition of PEPs to individuals.
2. Risk Assessments: The FCA will examine the proportionate risk assessments conducted by financial institutions for UK PEPs, their family members, and known close associates.
3. Enhanced Due Diligence: The review will evaluate how firms are applying enhanced due diligence and ongoing monitoring proportionately and in alignment with the assessed risks.
4. Account Rejections and Closures: The FCA will consider the criteria and processes employed by financial firms when deciding to reject or close accounts held by PEPs, their family members, and known close associates.
5. Customer Communication: The effectiveness of financial firms in communicating with their PEP customers will be assessed.
6. PEP Control Reviews: The FCA will evaluate how firms keep their PEP controls under review to ensure they remain appropriate and effective.

The results of this review are expected to be released by the end of June 2024. The FCA has emphasized that it will take swift action if any significant shortcomings are identified in the practices of assessed firms.

Sarah Pritchard, Executive Director of Markets at the FCA, underscored the importance of implementing rules proportionately to prevent creating unnecessary obstacles for public servants and their families. She stated, "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."

Under current legislation, financial firms are obligated to conduct additional checks on political figures, their family members, and close associates. These requirements align with international standards established by the Financial Action Task Force, which has been adopted by more than 200 countries and jurisdictions worldwide. However, misapplication of these rules by financial institutions can inadvertently lead to the exclusion of individuals from financial products and services.

The FCA has already taken measures to remind the industry and specific firms to adhere to its guidance on implementing existing rules. Several firms have modified their practices in response to these reminders. Individuals facing issues can also raise concerns with their financial institutions or seek recourse through the Financial Ombudsman Service.