Global: FCA Urges Financial Institutions to Enhance Treatment of Politically Exposed Persons (PEPs)

The Financial Conduct Authority (FCA) has urged financial firms to take additional steps to ensure that politically exposed persons (PEPs) and their families are treated fairly.

This call to action follows an inquiry into how UK financial institutions are adhering to legislative requirements based on global standards set by the Financial Action Task Force. The FCA’s investigation was triggered by the NatWest debanking scandal in 2023.

Although the investigation found that no firms were denying accounts based solely on status and most organizations were not subjecting PEPs to excessive or disproportionate checks, the FCA indicated that all firms could improve their practices.

The FCA presented several recommendations for financial organizations:

1. Adhere to the Legal Definition: Ensure the definition of a PEP is limited to the minimum required by law and does not extend beyond that.
2. Swift Review of Status: Promptly review the status of PEPs and their associates once they leave public office.
3. Effective Communication: Communicate effectively with PEPs in line with the Consumer Duty.
4. Risk-Based Assessments: Properly consider the actual level of risk posed by the customer and ensure that information requests are proportionate to those risks.
5. Enhanced Staff Training: Improve the training provided to staff who deal with PEPs.

Sarah Pritchard, executive director of markets and international at the FCA, stated, “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.”

The FCA is also consulting the industry on whether UK-based PEPs should qualify for lower risk status and is considering the introduction of special protections for non-executive members of the civil service.

The consultation will close on October 18th.