The Financial Conduct Authority (FCA) has issued a warning to banks that they could face fines if they wrongly deny accounts to politicians and their relatives. The regulator is reviewing how banks treat politically exposed persons (PEPs) amid claims that some have faced unfair scrutiny or rejection.
What are PEPs and why do they matter?
PEPs are individuals who hold or have held prominent public positions, such as MPs, ministers, judges, ambassadors, or senior military officers. They also include their family members and close associates. PEPs are considered to be at a higher risk of being involved in corruption, money laundering, or terrorist financing, according to international standards. Therefore, banks and other financial institutions are required to conduct enhanced due diligence (EDD) on PEPs before providing them with financial services. EDD involves verifying the identity, source of wealth, and source of funds of the PEPs, as well as monitoring their transactions and reporting any suspicious activity.
How are PEPs treated by banks in the UK?
The FCA has received complaints from some PEPs that they have faced difficulties in opening or maintaining bank accounts or accessing other financial products and services. Some have claimed that they have been subjected to excessive or intrusive checks, or that they have been denied accounts without a clear explanation.
For example, Nigel Farage, the former leader of UKIP and Brexit Party, lost his account with Coutts, a private bank owned by NatWest Group, after it emerged that his political views played a role in the decision. The FCA is investigating whether banks are applying a proportionate and risk-based approach to PEPs, or whether they are adopting a blanket policy of avoiding them altogether.
What is the FCA doing about it?
The FCA has launched two reviews on the issue of PEPs and de-banking. The first review is looking at how banks identify and assess PEPs, and whether they are complying with the legal and regulatory obligations. The second review is examining the extent and impact of de-banking on consumers and businesses in the UK. De-banking refers to the practice of terminating or restricting banking relationships with certain customers or categories of customers. The FCA is expected to publish its findings and recommendations by the end of the year.
She also said that EDD should not feel like “the financial equivalent of someone rifling through your bin”, and that the FCA is working with the industry and other stakeholders to improve the guidance and best practices on PEPs.
What are the implications for PEPs and banks?
The FCA’s warning could have significant implications for both PEPs and banks in the UK. For PEPs, it could mean that they will have more access and choice in financial services, as well as more transparency and fairness in how they are treated by banks. For banks, it could mean that they will have to review and revise their policies and procedures on PEPs, as well as invest more resources and training in EDD. It could also mean that they will face more scrutiny and enforcement action from the FCA if they fail to comply with the rules.
