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The UK’s top financial regulator has vowed to take “prompt action” against any banks found to be unfairly refusing service to politicians and their families, as it outlined the terms of a broad review thrust into the spotlight by controversy around Nigel Farage’s banking relationships.
The Financial Conduct Authority said on Tuesday that its previously announced review would examine how banks define so-called politically exposed persons, how they carry out risk assessments on those individuals, how they monitor evolving risks and the process for deciding to close accounts.
The review, which will be completed by the end of next June, will also look at how banks communicate with politically exposed persons, and the processes for keeping senior management informed of how rules around these individuals are implemented.
“If we find significant problems in the arrangements of any firm we will take prompt action with that firm to resolve those problems, and not wait for the completion for the review,” the FCA said.
The UK’s controls around PEPs have not been updated since 2017 and were due to be reviewed this year under the government’s omnibus financial services and markets bill, a mammoth set of post-Brexit reforms designed to boost the UK’s competitiveness.
“We are carrying out this review because of concerns that firms may not be treating customers individually as directed by both the legislation and FCA guidance,” the regulator said.
“This matters as individuals may find themselves excluded from products or services through no fault of their own. As well as potential unfairness, this also potentially harms the reputation of the UK’s financial services sector.”
The FCA said there were indications that some issues, including the use of standardised questionnaires for domestic PEPs, that “may not sufficiently recognise” that they are less risky than foreign ones. The FCA’s current guidance, which has been in place since 2017, makes clear that the regulator “expect(s) a firm will not decline or close a business relationship with a person merely because that person meets the definition of a PEP”.
The regulator has said it was conscious that politically exposed persons should be treated fairly after Farage, former leader of the UK independence party, claimed he had been ejected from NatWest’s private bank Coutts because of his political beliefs, sparking fierce backlash over potential discrimination against PEPs.
The FCA has already asked MPs and peers if they have faced challenges obtaining banking services. But the FCA has also been warned by banks about the dangers of lowering controls that were introduced to safeguard against money laundering and financial crime.
“These rules follow international standards and are designed to keep the financial system clean, free from corruption and guard against financial crime,” the FCA’s executive director of markets Sarah Pritchard said on Tuesday.
“It’s important that they are implemented proportionately and don’t create unnecessary barriers for public servants and their families.”
The UK’s regime is largely based on international standards from the Financial Action Task Force, which more than 200 countries have signed up for.
Richard Burger, partner in the investigations group at law firm WilmerHale, said the FCA’s work around PEP’s was “part of the wider collective drive to combat financial crime in the City . . . (which) is beneficial to the City.”