FCA Reviews Treatment of Politically Exposed Persons09/14/2023The U.K. Financial Conduct Authority has launched a review of the treatment by regulated financial services firms of Politically Exposed Persons based in the U.K. Firms are currently obliged, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, to conduct enhanced due diligence when dealing with PEPs. The FCA has existing Guidance on the treatment of PEPs for these purposes, which makes clear (amongst other things) that firms should adopt a proportionate and risk-based approach to the application of the MLRs. The FCA has been mandated to review this guidance under the Financial Services and Markets Act 2023, including an investigation into how firms are applying the guidance and consideration as to whether any amendments are needed. We discuss this mandate and the FSMA 2023 more generally in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023. Concerns have been raised in recent weeks that firms may not be applying a proportionate and risk-based approach, following the high profile "de-banking" of former U.K. politician Nigel Farage by Coutts Bank, which attracted public criticism and, following public disclosure of the basis for Coutts' decision, led to the resignation of Coutts CEO Peter Flavel. Dame Alison Rose, CEO of NatWest (which owns Coutts Bank) was also forced to resign, following statements made to the BBC regarding the de-banking.
The FCA's review will consider how firms are applying the MLRs, including: how the definition of PEPs is being applied to individuals; whether proportionate risk assessments and enhanced due diligence are being conducted; the basis for decisions to reject or close accounts for PEPs; whether firms are communicating effectively with PEP customers when opening accounts; and whether they are keeping PEP controls under review.
The FCA will publish a report on its review by the end of June 2024.
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