This review sets out our findings on how effectively firms are following our current Guidance on the treatment of politically exposed persons (PEPs) for anti money-laundering purposes.
The review aims to:
- consider if our current Guidance[2] remains appropriate
- outline initial changes we propose to make
Who this applies to
These findings are relevant to all firms providing financial services to PEPs and their relatives and close associates (RCAs).
What we did
Our Guidance states that firms should apply a risk-based and proportionate approach to PEPs when considering money laundering risks.
We contacted over 1,000 UK PEPs and received 65 responses. We then undertook data-gathering and analysis with firms from 5 retail sectors. We subsequently narrowed this down to 15 firms for a more detailed review.
What we found
We found most firms had systems and controls designed to implement our Guidance. However, all the firms we assessed needed to make improvements. Issues included:
- some firms used definitions for PEPs and RCAs that are wider than those in the regulations and our Guidance
- some did not have effective arrangements to assess if the PEP classification was still appropriate after the PEP had left public office
- a few did not consider the customer’s actual risk in their assessment and rating, and did not give a clear rationale for their risk rating
- firms needed to improve the clarity and detail of their communications with PEP and RCA customers
- most firms needed to improve their staff training
- some firms needed to update their policies to reflect recent legislative amendments to treat UK PEPs and RCAs as having a lower level of risk than a foreign PEP, unless they have other risk factors
We have provided detailed feedback to the 15 firms we reviewed on resolving these issues. In a small number of cases, we are appointing an independent skilled person for a more detailed review.
Based on our findings, we expect all firms to check that their policies, procedures and controls are in line with our Guidance.
We also propose some targeted changes to our Guidance including to make sure it reflects recent changes to the Money Laundering Regulations, which became effective from 10 January 2024.
Next steps
We expect all firms to draw relevant lessons from the review’s findings, including the good practices we observed.
We have launched a consultation[4] on proposed targeted clarifications to our Guidance, which closes in October 2024.
This consultation will help us identify if we need to make any further changes. After we have assessed the responses we will publish a new version of the Guidance.
Background
In recent years, UK Parliamentarians have raised concerns that some firms are applying our Guidance on PEPs in a disproportionate way.
Parliament asked us to review how effectively firms are following our current Guidance and, given our findings, to consider whether it is still appropriate. In September 2023 we published the terms of reference[5] for this review.
We were originally due to publish these findings at the end of June 2024, in line with the deadline set in the Financial Services and Markets Act 2023. However, we decided this was not appropriate in the pre-election period and to publish it in July once Parliament returned.