UK Financial Conduct Authority Consults on Amendments to Guidance on Treatment of Domestic PEPs

The Financial Conduct Authority has published the findings of its multi-firm review into the treatment of Politically Exposed Persons and launched a consultation on proposed amendments to its related guidance. The review was required under the Financial Services and Markets Act 2023, following concerns from U.K. Parliamentarians that firms were not effectively applying the FCA's guidance. 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 the FCA has identified areas for improvement and has called on firms to, among other things: (i) ensure their definition of a PEP, family member or close associate is tightened and in line with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs) and the FCA's guidance; (ii) review the status of PEPs and their associates promptly once they leave public office; (iii) communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible; (iv) effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks; and (v) improve the training offered to staff who deal with PEPs. The FCA has provided detailed feedback to the firms that were reviewed and in a small number of cases, has instigated an independent and more detailed review of firms' practices.

To clarify its expectations, the FCA proposes changes to its guidance, including: (a) to reflect the amended MLRs, that the starting point for a firm's risk assessment is that U.K. PEPs should be treated as lower risk than foreign PEPs; (b) to make clear that non-executive board members of civil service departments should not be treated as PEPs solely for that reason; (c) to give greater flexibility in who can approve or sign off PEP relationships within firms, provided the MLRO continues to have oversight of all PEP relationships; and (d) to make additional non-substantive changes including removing references to EU guidance. Responses may be submitted until October 18, 2024. The FCA states that where improvements have been identified, firms should implement those changes now and not wait for the final updated guidance to be published.

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