The Financial Conduct Authority (FCA) has issued a directive urging financial institutions to improve their handling of politically exposed persons (PEPs) and their families to ensure that they are not subjected to unfair practices.
This directive follows an investigation conducted by the FCA into the compliance of UK financial institutions with the global standards set by the international Financial Action Task Force. The investigation was prompted by the NatWest debanking scandal in 2023.
The findings of the investigation revealed that while no firms were found to be denying accounts based on status, and most organisations did not impose excessive or disproportionate checks on PEPs, the FCA asserted that there is room for improvement across the board.
The FCA has put forth a set of recommendations for financial organizations, which includes:
– Ensuring that the definition of a PEP aligns with the minimum requirements stipulated by law and does not exceed that
– Promptly reviewing the status of PEPs and their associates upon leaving public office
– Effectively communicating with PEPs in accordance with the Consumer Duty
– Carefully assessing the actual level of risk presented by the customer, and ensuring that information requests are proportional to those risks
– Enhancing the training provided to staff who interact with PEPs
Sarah Pritchard, the executive director of markets and international at the FCA, emphasized the need for a balanced approach in scrutinizing individuals in public service roles, without unfairly disadvantaging them or their families. She acknowledged that while most firms strive to strike this balance, there is room for improvement, and the FCA will be following up with firms that need to make changes.
Furthermore, the FCA is seeking industry input on the possibility of granting UK-based PEPs a lower risk status and introducing special protections for non-executive members of the civil service. The consultation period for this will conclude on October 18th.
The FCA’s efforts to improve the treatment of PEPs in the financial sector underscore its commitment to upholding fairness and integrity within the industry. As financial institutions strive to adhere to these recommendations, it is crucial for them to engage in dialogue with the FCA and actively participate in the consultation process to contribute to the ongoing evolution of regulatory standards.
In conclusion, the FCA’s call for enhanced treatment of PEPs and their families underscores the need for financial institutions to strive for fairness and equality in their interactions with individuals holding public office. By embracing these recommendations, financial organizations can reinforce their commitment to ethical and responsible conduct, thereby fostering greater trust and confidence in the financial sector.