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Following concerns about how firms in the UK are meeting the expected requirements of additional due diligence on Politically Exposed Persons (PEPs), the FCA has conducted a review of regulated firms’ processes to ensure they align with the standards set by the International Financial Action Task Force. The review found that most firms did not subject PEPs to excessive or disproportionate checks, and none would deny them an account based on their status. It was however determined that all firms could improve, and so the regulator has communicated to firms that they should:

• Ensure their definition of a PEP, family member or close associate is tightened to the minimum required by law and not exceed that;
• Review the status of PEPs and their associates promptly after the PEP leaves public office;
• Communicate to PEPs effectively and in line with the Consumer Duty the reasons for the firm’s actions where possible;
• Effectively consider the actual level of risk posed by the customer and ensure that any information requests are proportionate to those risks; and
• Improve staff training for those who deal with PEPs.

The FCA has observed that some firms have already begun to implement improvements to their processes. However, in a small number of cases, the FCA is instigating an independent and more detailed review of firms’ practices. The FCA feels it is essential to understand that while public service should rightly come with greater scrutiny, it is important that it is proportionate and does not disadvantage people when interacting with financial services.

The FCA is proposing changes to its guidance to:

• Reflect the new legal starting point that UK PEPs should be treated as lower risk;
• Make clear that non-executive board members of civil service departments should not be treated as PEPs solely for that reason; and
• Give greater flexibility in who can approve or sign off PEP relationships within firms.

The guidance is open for consultation until 18 October 2024 and the FCA is welcoming any input a firm may have. It is also clear that where a firm has identified a potential improvement to its processes, it should be implemented now as opposed to waiting for the final guidance to be published.

Thistle can assist your firm with a full-scale review of its internal processes when dealing with an identified PEP and can help to implement the necessary changes required to align with the newly set expectations from the FCA.