The Financial Conduct Authority (FCA) has initiated a comprehensive review of how financial services firms treat Politically Exposed Persons (PEPs) based in the UK. Although the FCA cannot alter the legal framework governing PEPs, this review will closely scrutinise how firms:
- Define individuals as PEPs.
- Conduct risk assessments for UK-based PEPs, their family members, and known close associates in a proportionate manner.
- Apply enhanced due diligence and continuous monitoring in accordance with the associated risks.
- Make decisions regarding the acceptance or closure of accounts for PEPs and their close associates.
- Effectively communicate with their PEP customers.
- Periodically review and adjust their PEP control measures to ensure their ongoing appropriateness.
The review is slated to conclude by the end of June 2024, and the FCA is prepared to take swift action should it identify any significant shortcomings in the practices of assessed firms.
Sarah Pritchard, Executive Director of Markets at the FCA, emphasised the importance of implementing these rules proportionately. 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. 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.”
Financial firms are legally obligated to perform additional due diligence on political figures, their relatives, and close associates, as mandated by legislation adopted by Parliament. The standards are aligned with the guidelines set by the Financial Action Task Force, which has gained the commitment of more than 200 countries and jurisdictions. However, if firms misapply these rules, individuals may find themselves unintentionally excluded from accessing financial products or services.
The FCA has already taken steps to remind the industry and specific firms to adhere to its guidance for implementing existing rules, resulting in some firms modifying their practices accordingly. Individuals who encounter issues can also raise concerns with their financial institution or the Financial Ombudsman Service.