This section of the 2023 Act came into force on 29 June 2023 and refers to something quite topical in the recent news cycle - PEPs.
Previously some consumers may have thought PEP sounded like the name of an anti-aging peptide eye cream. Lawyers may think of Profit per Equity Partner. If however you've completed an Anti-Money Laundering check you'll most likely have been asked if you are a Politically Exposed Person (PEP). This type of PEP is defined in The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) as:
"an individual who is entrusted with prominent public functions, other than as a middle-ranking or junior official."
The list of those deemed to be entrusted with prominent public functions ranges from heads of state to members of political parties to judges and ambassadors. The MLR 2017 also applies to family members and close associates of PEPs.
The story that has caught the headlines is that of Nigel Farage who was dropped as a customer by Coutts and signposted to a NatWest account instead. His PEP status being given as one of the reasons as the story evolved. Perhaps lesser well known is the story of Dominic Lawson's family. Dominic Lawson is the son of the late Nigel Lawson who was a former chancellor and member of the House of Lords. Dominic's daughter Domenica has Down's Syndrome and her parents tried to help her open a bank account. At one bank the family were told they would not be able to open an account and no reason was given. They enquired with a branch manager who told them the account could not be opened due to money laundering risks - Domenica's grandfather was considered a PEP. Eventually after a long process they were able to open the account.
The family tried to open an account at another bank a few years later, for a charity they had started to help young adults with learning disabilities into paid work. The bank they approached this time refused them for a different reason. Dominic Lawson's wife Rosa, is the sister of Christopher Monckton,3rd Viscount Monckton. As a viscount Christopher was considered a PEP and his sister Rosa caught by MLR 2017 as a family member.
Stories like this have led to public discussions on who qualifies as a PEP and how the regulations should be applied. The FCA has existing guidance on application of the MLR 2017.
Whilst there is existing guidance, section 78 of the 2023 Act enables the FCA to review how financial services firms are applying MLR 2017. The FCA acknowledge that they cannot amend the existing legislation, but they want to look carefully at how firms are:
- applying the definition of PEPs to individuals;
- conducting proportionate risk assessments of UK PEPs, their family members and known close associates;
- applying enhanced due diligence and ongoing monitoring proportionately and in line with risk;
- deciding to reject or close accounts for PEPs, their family members and known close associates;
- effectively communicating with their PEP customers; and
- keeping their PEP controls under review to ensure they remain appropriate.
In announcing the FCA review Sarah Pritchard, Executive Director of Markets at the FCA said that:
"if rules are applied inappropriately by firms, then individuals may find themselves excluded from products or services through no fault of their own."
The FCA is currently collecting experiences from MPs, peers and other interested parties. The FCA expect to report on the review by June 2024.
