The law requires firms to do additional checks of politically exposed persons (PEPs), and the Financial Conduct Authority (FCA) carried out a review following concerns over whether requirements were being met.
The regulator found most firms did not impose excessive or disproportionate checks on so-called PEPs, and would not deny them an account based on their status.
However, the FCA said firms could improve in their practices.
The regulator has asked firms to ensure their definition of a PEP, family member or close associate is limited to the minimum required by law and to review the status of PEPs and their associates as soon as they leave public office.
Firms have also been told to effectively communicate with PEPs in line with Consumer Duty and explain the reasons for certain actions where possible.
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Additionally, the FCA has told firms to effectively consider the actual level of risk posed by the customer to make sure information requests are proportionate. Firms have also been told to improve the training offered to staff who work with PEPs.
The FCA said some firms had started to make improvements after a change was made in January this year to suggest UK PEPs and their associates presented a lower level of risk than foreign PEPs. The regulator said it was instigating an independent and more detailed review of firms’ practices in a “small number of cases”.
It came after the banking fiasco last year that saw Alison Rose, the CEO of NatWest Group, step down from her position after admitting she was the source behind an inaccurate BBC story regarding the closure of Nigel Farage’s bank account.
Following this, the Government also stepped in and said it would introduce new rules over fears that banks were terminating accounts because they disagree with someone’s political beliefs.
Reviewing PEP guidance
The FCA is proposing to amend its guidance to reflect the new legal starting point suggesting that UK PEPs should be treated as lower risk and make it clear that non-executive board members of civil service departments should not be treated as PEPs solely for that reason.
It also wants to introduce more flexibility regarding who can approve or sign off PEP relationships within firms.
Consultation on the guidance is open until 18 October and the FCA has asked for input from the sector and customers who meet the definition of a PEP.
The regulator said that where improvements are clear, it expects firms to make changes immediately rather than wait for the final guidance to be published.
The FCA will continue to monitor firms and act if needed.
Sarah Pritchard, executive director of markets and international at the 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.”
This article is based on one that first appeared on our sister site, Mortgage Solutions, here.
