UK Review of Banks' Handling of Politically Exposed Customers

The Financial Conduct Authority (FCA) in the United Kingdom has officially launched a comprehensive review into how banks conduct mandatory checks on "politically exposed" customers (PEPs) and their families to mitigate money laundering risks.

The FCA emphasized that although it is unable to change the existing legal requirements for PEP checks, the review aims to evaluate whether banks are applying these rules excessively and scrutinize their decisions to close accounts belonging to PEPs, their family members, or close associates.

Sarah Pritchard, the FCA's Executive Director for Markets, stated, "We have already persuaded some firms to improve their approach, and we will use this review to identify if we need to provide further guidance to firms." The FCA has set a deadline for the review, which is expected to conclude by the end of June 2024.

This examination is distinct from an urgent data-gathering exercise initiated by British Finance Minister Jeremy Hunt to assess the extent of "debanking," a practice that has gained prominence in recent times. The FCA made it clear that if significant shortcomings are uncovered in any firm's practices during the assessment, swift action will be taken.

Furthermore, Britain's Financial Services Minister, Andrew Griffith, has already urged the FCA to consider creating a less burdensome domestic PEP regime, recognizing the lower level of risk associated with individuals who do not have an international role.

This review of existing guidance pertaining to politically exposed persons (PEPs) is part of a broader exploration of "debanking," which has emerged as a political concern. Former Brexit Party leader Nigel Farage, for instance, claimed that his account at private bank Coutts, a part of NatWest, was closed due to his political beliefs.

The rules regarding PEPs were originally drafted by the international Financial Action Task Force (FATF) on money laundering and are implemented in more than 200 jurisdictions. The FCA had issued guidance in 2017 outlining how these rules should be applied.

It is worth noting that this review is separate from the urgent data-gathering exercise called for by British Finance Minister Jeremy Hunt, who suggested that any lenders engaged in widespread and unjustified debanking should face penalties. Initial findings from that review are expected to be released later this month, shedding light on the broader landscape of debanking practices in the UK.

By fLEXI tEAM