The Financial Conduct Authority (FCA) has called for changes to how financial firms treat parliamentarians, senior public servants, and their families, urging greater fairness and transparency.
To initiate these changes, the FCA has proposed updates to its guidance and has opened a consultation period until 18 October 2024, welcoming further input.
Currently, under legislation adopted by Parliament, financial firms must perform additional checks on so-called politically exposed persons (PEPs). This requirement aligns with global standards set by the international Financial Action Task Force, which are implemented by over 200 jurisdictions.
After concerns had been raised, the FCA found that most firms in its review did not subject PEPs to excessive or disproportionate checks, and none would deny them an account based on their status. However, it believes all firms could improve.
The regulatory body has said that firms must:
- Ensure their definition of a PEP, family member, or close associate is tightened to the minimum required by law and not go beyond that.
- Review the status of PEPs and their associates promptly once they leave public office.
- Communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible.
- Effectively consider the actual level of risk posed by the customer and ensure that information requests are proportionate to those risks.
- Improve the training offered to staff who deal with PEPs.
As mentioned above, the FCA has already begun to propose changes. These changes include reflecting the new legal starting point that UK PEPs should be treated as lower risk, clarifying that non-executive board members of civil service departments should not be classified as PEPs solely for that reason, and providing greater flexibility in who can approve or sign off on PEP relationships within firms.
Sarah Pritchard, Executive Director of Markets and International at FCA, said: “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.”