Thought for the Week: FCA launches review of treatment of domestic politically exposed persons - what firms should be doing?
11 September 2023
11 September 2023
Last week the Financial Conduct Authority launched its review of the treatment of domestic politically exposed persons (PEPs) by financial services firms.
The management of firms' relationships with domestic PEPs has been in the spotlight over the summer, notably in relation to Coutts' decision to exit accounts held by Nigel Farage. This has led to a rise in complaints from PEP customers, many of whom have adopted the strategy deployed by Mr Farage to challenge their treatment by firms, including the use of data subject access requests (DSARs) to obtain internal records relating to their accounts.
The FCA's review will assess how firms treat domestic PEPs, including specifically how firms are meeting AML obligations and FCA guidance to conduct proportionate and risk-based due diligence on customers. The FCA has already requested information from firms on their policies and procedures for managing relationships with domestic PEPs. As part of the review, the FCA has also written to UK based PEPs (including MPs, peers and senior civil servants) seeking feedback on their experiences of dealing with FCA regulated firms.
Against the backdrop of these recent developments and heightened scrutiny of treatment of PEPs by the regulator, firms should consider assessing their policies, risk management systems and procedures concerning domestic PEPs, and whether their current arrangements are aligned with the legislative framework and FCA guidance.
Firms should also prepare themselves for an uptick in the number of DSARs from PEP customers, ensure that they are across their disclosure obligations, and are clear what data they are/are not required to hand over to customers upon receipt of a DSAR.
The FCA has indicated that it will be assessing how firms are effectively communicating with their PEP customers, including when closing accounts. Firms should review record keeping procedures and ensure that reasons for the decision to exit customer relationships are carefully documented and communicated to the customer (noting that firms will need to exercise care to avoid the risk of "tipping-off" where the account closure is due to financial crime concerns). This issue alone is one that is likely to cause firms some difficulties given the FCA's wish for transparency in communications.
The FCA review is the latest in a series of policy developments in recent months aimed at addressing the issue of de-banking customers:
Authors: Lynn Dunne, Partner; Mark Donnelly, Junior Associate