On 18 July 2024, the Financial Conduct Authority (FCA) published the results of its multi-firm review on the treatment of politically exposed persons (PEPs), and launched a consultation (GC24/4) on proposed changes to its guidance on the subject.

Background

Financial services firms are required (under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs)) to carry out extra checks on PEPs, in line with global standards set by the Financial Action Task Force and implemented by over 200 jurisdictions. Following concerns around how UK firms are meeting these requirements, the FCA has reviewed how firms are treating PEPs.

Findings of the multi-firm review

The Financial Services and Markets Act 2023 requires the FCA to review how firms are applying its guidance to see if it remains appropriate or requires changes. In carrying out its review the FCA found that, whilst most firms in the review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status, all firms could improve. As a result of the review, it told firms that they should:

  • Ensure their definition of a PEP, family member or close associate is tightened to the minimum required by law and does not go beyond that.
  • Review the status of PEPs and their associates promptly once they leave their public office.
  • Communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible.
  • Effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks.
  • Improve the training offered to staff who deal with PEPs.

Some firms were found to have already begun making improvements following the recent changes to the MLRs, which became effective from 10 January 2024 and made the legal starting point that UK PEPs and their associates present a lower level of risk than foreign PEPs. In a small number of cases, however, the FCA is appointing an independent skilled person for a more detailed review.

In light of the review, the FCA expects all firms to check that their policies, procedures and controls are in line with its guidance.

Consultation on guidance changes

In GC24/4, the FCA is proposing some targeted changes to its guidance on the treatment of PEPs, including changes to:

  • Reflect the new legal starting point that UK PEPs should be treated as lower risk.
  • Make clear that non-executive board members of civil service departments should not be treated as PEPs solely for that reason.
  • Give greater flexibility in who can approve or sign off PEP relationships within firms.

The deadline for responses to GC24/4 is 18 October 2024.