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FCA calls for improved handling of PEPs by financial firms

Politically Exposed Persons (PEPs) FCA guidelines
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The Financial Conduct Authority (FCA) has instructed financial firms, including banks, payment firms, and lenders, to enhance their treatment of parliamentarians, senior public servants, and their families to prevent unfair practices. Under legislation adopted by Parliament, financial firms are required to conduct extra checks on so-called politically exposed persons (PEPs), following global standards set by the international Financial Action Task Force and implemented by over 200 jurisdictions.

Review findings and recommendations

Concerns have arisen regarding how UK firms are meeting these requirements, prompting the FCA to review their treatment of PEPs. The review revealed that while most firms did not subject PEPs to excessive or disproportionate checks and none denied them accounts based on their status, there remains significant room for improvement. The FCA has outlined specific recommendations for firms:

  • Tightening definitions: Ensure the definition of a PEP, family member, or close associate is limited to the minimum required by law.
  • Timely status reviews: Promptly review the status of PEPs and their associates once they leave public office.
  • Effective communication: Communicate effectively with PEPs, in line with the Consumer Duty, explaining the reasons for any actions where possible.
  • Risk-based approach: Consider the actual level of risk posed by the customer and ensure information requests are proportionate to those risks.
  • Improved training: Enhance the training provided to staff dealing with PEPs.

Since the change in January 2024, which established the legal starting point that UK PEPs and their associates present a lower level of risk than foreign PEPs, some firms have already begun making improvements. However, in a small number of cases, the FCA is initiating independent, detailed reviews of firm practices.

Comments from the FCA

Sarah Pritchard, the FCA’s executive director of markets and international, emphasised the need for proportionate scrutiny in public service roles: “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.”

Pritchard also highlighted the direct feedback from parliamentarians about the issues they and their families have faced and reiterated the FCA’s expectations for improvements, particularly in communication with customers.

Proposed changes and ongoing monitoring

The FCA is proposing changes to its guidance to:

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

The guidance is open for consultation until 18 October 2024, and the FCA welcomes further input. Firms are urged to implement the identified improvements immediately and not wait for the final updated guidance.

The FCA will continue to monitor firms’ approaches to PEPs through ongoing supervisory engagement and will take action if necessary. PEPs dissatisfied with their experience can complain to the firm and then to the Financial Ombudsman Service. Some firms also have dedicated points of contact for PEPs.

How Neopay can help

At Neopay, we offer tailored compliance solutions to help financial firms align with the FCA’s guidance on treating Politically Exposed Persons (PEPs). Our comprehensive services include risk assessment tools, policy reviews, and staff training programs designed to ensure your organisation meets regulatory standards while maintaining fair and transparent practices. By partnering with Neopay, you can enhance your compliance framework, build trust with your clients, and stay ahead of regulatory changes, ensuring that your treatment of PEPs is both effective and just.

To find out more about how we can support your business, contact us here.

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