The City regulator said it will take “prompt action” if a bank or financial service outright denies service to politicians rather than basing the decision on risk.
The Financial Conduct Authority (FCA) made the promise on Tuesday as it launched a review into how firms are treating politically exposed persons (PEPs) in the UK.
Under international anti-money laundering rules that were incorporated into British law, financial services are required to scrutinise PEPs, their families, and known associates more closely.
Although the FCA published guidance in 2017 to clarify that firms must assess the risks of PEPs individually rather than applying a generic approach to all of them, and that British PEPs should be treated as low risk unless they pose a higher risk for other reasons, politicians have complained for years that they and their family members were sent detailed questionnaires and, in some cases, simply denied bank accounts.
Before launching the review, FCA Executive Director Sarah Pritchard wrote in
The Telegraph that the watchdog had “listened to the concerns of those who have felt that banks and others have been too risk averse, enforcing legal requirements with broadsword rather than scalpel.
“That is why Parliament has asked us to review how UK Politically Exposed Persons are treated within the current legal regime,” she wrote.
Ms. Pritchard said while it’s “necessary and proportionate” for banks to probe how PEPs got their money, “an appropriate level of inquiry should not feel like the financial equivalent of someone rifling through your bin.”
In terms of reference (
pdf) published on Tuesday, the FCA said it will assess how firms are conducting proportionate risk assessments of UK PEPs, their family members, and known close associates; how enhanced due diligence is conducted on them; and whether decisions to reject or close their accounts are “in line with the applicable legislation, our Guidance and the consumer duty.”
The review will also look at how firms are communicating with their PEP customers, whether they keep their PEP controls under review, and whether junior or local officials have been considered PEPs.
The FCA said it will collect feedback from PEPs and information from firms and other stakeholders such as the Financial Ombudsman Service.
Conducting a Review
In August, the FCA already began writing to MPs, peers, and other PEPs including senior civil servants and senior army officials, asking them to share their experiences of the PEPs regime.
“In conducting our review, we will be prioritising firms where intelligence indicates concerns in their conduct with PEPs. If we find significant problems in the arrangements of any firm we will take prompt action with that firm to resolve those problems, and not wait for the completion for the review,” the FCA said.
The watchdog expects to conclude the review and publish a report in 10 months.
In a statement, Ms. Pritchard said: “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.”
She also stressed that individuals who are facing problems with financial services should raise their concerns to their service providers or the Financial Ombudsman Service.
The difficulties PEPs have faced in banking has come under the spotlight after former Brexit Party leader Nigel Farage had his
account closed by private bank Coutts.
Mr. Farage initially suspected he was debanked over PEP rules. He later found out that Coutts decided to reject him because his “publicly-stated views” were at odds with the bank’s position as “an inclusive organisation,” specifically regarding “ESG/Diversity and inclusion.”
The incident led to the resignation of Coutts CEO Peter Flavel and the CEO of Coutts’ parent bank NatWest, Dame Alison Rose.
On Sunday, Reform UK party leader Richard Tice, another key Brexit figure and an ally of Mr. Farage, also revealed that a major bank
rejected his loan application because he was considered a “reputational risk.”
