On 5 September 2023, the FCA published the terms of reference (ToRs) for its review of the treatment of domestic politically exposed persons (PEPs) by financial services firms.
The review is being conducted in compliance with Section 78 of the Financial Services and Markets Act 2023 and follows a letter that the FCA sent to firms on 14 August 2023.
The review will assess how firms are meeting the anti-money laundering (AML) legislation and the FCA’s guidance to conduct proportionate and risk-based due diligence on their clients. The FCA is carrying out this review as there are concerns that firms may not be treating customers individually as directed by both the legislation and FCA guidance.
In particular, the review will look carefully at firms’ arrangements for dealing with PEPs based in the UK. While the FCA cannot change the law putting in place the PEPs regime, the review will consider how firms are:
- Applying the definition of PEPs to individuals.
- Conducting proportionate risk assessments of UK PEPs, their family members and known close associates.
- Applying enhanced due diligence and ongoing monitoring proportionately and in line with risk.
- Deciding to reject or close accounts for PEPs, their family members and known close associates.
- Effectively communicating with their PEP customers.
- Keeping their PEP controls under review to ensure they remain appropriate.
Input will be sought from UK PEPs and their family members and known close associates.
The review will report by the end of June 2024 and the FCA will take prompt action if any significant deficiencies are identified in the arrangements of any firm assessed. The FCA will also, if necessary, initiate a consultation on revised guidance.