Syed Rahman of Rahman Ravelli outlines the Financial Conduct Authority’s instructions to some financial services companies.
The Financial Conduct Authority (FCA) has ordered a number of financial services companies to face skilled person reviews over their treatment of politically exposed persons (PEPs).
The FCA said a “small number” of the 15 financial services companies examined as part of an industry-wide assessment of treatment of customers flagged as higher risk under anti-money laundering laws will now face more detailed reviews. These will involve an independent practitioner being appointed to examine the relevant issues on the FCA’s behalf.
The FCA said its initial review of the 15 companies found that most needed to improve their training of staff in relation to the handling of PEPs.
Guidance
The FCA’s review had been prompted by complaints from some UK political commentators about their treatment by banks seeking to follow anti-money laundering rules.
Seven years ago, the FCA published its guidance to help financial services firms implement a risk-based and proportionate approach to money laundering risks. This stated that UK PEPs and their relatives and close associates should be classed as lower risk, with more intrusive measures only taken when firms identify other higher risk indicators.
But concerns have been voiced by some UK parliamentarians that some FCA-regulated firms are not effectively applying the guidance. Problems reported included PEPs having to provide a lot of information about their wealth and income and, in some cases, being denied services. Parliament asked the FCA to review - under Section 78 of The Financial Services and Markets Act 2023 - how effectively firms are following the guidance.
Responses
The review involved the FCA contacting over 1,000 PEPs and gathering data before focusing on 15 firms for a more detailed examination. Review of these firms involved assessing their policies and procedures for the risk management and treatment of PEPs. These 15 firms, which hold approximately 60% of the UK market share for retail main current accounts, included those most often referenced in the PEPs’ responses to the FCA.
The FCA’s research found that while most firms had systems and controls designed to implement the guidance, there was room for improvement in all the firms assessed.
The issues that needed addressing included:
- Some firms including definitions for PEPs and their relatives and close associates that were not in line with the FCA guidance or the Money Laundering Regulations.
- A number of firms not having effective arrangements in place to review PEPs to ensure the PEP classification remained appropriate after the PEP had left public office.
- A small number of firms not effectively considering the customer’s actual risk in their assessment and rating.
- Some firms needing to improve the clarity and level of detail in their communications with PEPs.
- Most of the firms needing to improve workforce training in order to enhance staff understanding and achieve consistency in customer treatment.
The FCA added that its examination of firms did not show them regularly applying excessive enhanced due diligence, with only “a small number of cases of disproportionate information requests’’ identified. According to the FCA, its review did not identify any cases where PEPs were rejected or had accounts closed simply because of their PEP status.
The FCA also said that it intends to make some targeted changes to its current guidance to ensure more clarity regarding some of the issues identified in the review, such as some PEP definitions. It has begun a consultation on the proposed clarifications and will accept feedback until October 2024.
