Banks and other financial firms have been told to treat politicians and their families fairly after the city regulator found improvement is needed in all the firms it had reviewed.
In its findings published on Thursday, the FCA said all 15 firms it had examined were clear that they wouldn’t decline products or services to British politicians and people in other roles with public function simply because of their status, but all firms have room for improvements.
Under international AML rules adopted in the UK, people who hold significant public functions, known as Politically Exposed Persons (PEPs), as well as their relatives and close associates (RCAs), are subject to additional checks when they seek products and services from financial firms including banks, lenders, and payment firms.
Under FCA guidance published in 2017, firms should treat British PEPs and their RCAs as lower risk by default and only take more intrusive measures when they identify other higher-risk indicators. The guidance has been formalised by regulation that took effect on January 10 this year.
After reviewing how firms applied the guidance, the FCA found deficiencies in all 15 firms it had triangulated, which collectively hold around 60 percent of the UK market share for retail main current accounts.
Seven of the firms used a definition of PEPs and RCAs that was wider than expected, the regulator said.
Two of the firms were found not to have effectively considered the customer’s actual risk in their assessment and ratings, and five of the firms didn’t have effective arrangement review PEPs and RCAs, meaning customers who are no longer PEPs/RCAs can’t be declassified in a timely manner.
The regulator also found that six firms needed to improve the e clarity and quality of their customer communications, some firms were operating under global policies and didn’t make changes after new regulation came into effect this year, and most of the 15 firms needed to improve staff training.
Despite the deficiencies, the FCA said all firms were clear that they would not decline products or services to UK PEPs or their RCAs simply because of PEP status, and that there was no evidence firms regularly applied excessive enhanced due diligence measures.
According to the regulator, some PEPs and RCAs have been denied products or services, and/or had existing accounts closed between July 1, 2022 and June 30, 2023, but firms have said “this was due to financial crime reasons, not because of PEP status.”
“This will have included cases where the rejection or closure was due to customers not providing the information that firms requested,” the report added.
The regulator also noted that a small number of firms were not taking on any PEPs as customers.
Sarah Pritchard, the FCA’s executive director of markets and international, said in a statement: “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.
“We have heard directly from some parliamentarians about the problems they and their families have faced. We have been clear where we expect firms to make improvements, including in how they communicate with their customers.”
The regulator launched a consultation on a number of proposed changes to its guidance to reflect the regulation that requires firms to treat domestic PEPs as lower risk, clarify that non-executive board members of civil service departments should not be treated as PEPs, and give greater flexibility in who can approve or sign off PEP relationships within firms.
