July 26, 2024

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by: kiran

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Tags: "Regulation"

Essential Updates: FCA Review on PEPs and Upcoming Guidance Changes

The FCA has recently published its findings on how firms manage Politically Exposed Persons (PEPs), following a delay due to the general election. This review assesses how effectively firms apply a risk-based and proportionate approach to PEPs. Additionally, the FCA is consulting on updates to their Guidance for handling UK PEPs. Below, we summarise the review and the consultation.

The Review

The FCA reached out to over 100 UK PEPs and analysed data from firms across five retail sectors, with a detailed review of 15 firms. The goal is to ensure that public servants are not unfairly denied access to financial products and services. Key findings include:

  • Overly Broad Definitions: Some firms use broader definitions for PEPs, their relatives, and close associates (RCAs) than required by regulations and FCA Guidance.
  • Ineffective Reassessment: Many firms lack effective processes to reassess PEP status after the individual leaves public office.
  • Inadequate Risk Assessments: Some firms did not properly consider the customer’s actual risk and lacked a clear rationale for risk ratings.
  • Communication Issues: There was a lack of clarity and detail in communications with PEP and RCA customers.
  • Training Needs: Staff training needs improvement to ensure effective application of policies and procedures.
  • Policy Updates: Policies must be updated to reflect recent legislative changes, treating UK PEPs and RCAs as lower risk compared to foreign PEPs.

The Consultation – FG17/6: Guidance on the Treatment of PEPs

The Financial Services and Markets Act 2023 mandates a review of the FCA’s Guidance to ensure its relevance and clarity. While the FCA generally found the Guidance appropriate, several amendments are proposed:

  •  Non-Executive Board Members: Inclusion of Non-Executive Board Members in civil service departments.
  • PEP Relationship Sign-Off: Establishment of sign-off procedures for PEP relationships.
  • Legislative Updates: Reflection of changes in the Money Laundering Regulations.
  • Removal of EU Guidance: Elimination of outdated EU Guidance no longer applicable under UK law.

Though the Guidance targets firms subject to the Money Laundering Regulations, all firms should consider these updates as best practice. The consultation period ends on 18 October 2024.

What Firms Should Do

  • Review Policies and Procedures: Assess your policies, procedures, and controls related to PEP and RCA risk management.
  • Improve Communication: Ensure clear and effective communication with PEPs and RCAs, clarifying what information is needed and why.
  • Enhance Training: Make sure staff are well-trained to apply policies and procedures consistently.
  • Consider Responding to the Consultation: Evaluate whether to provide feedback on the FCA’s proposed changes.

How We Can Help

If you would like an independent review of your current or proposed compliance measures, or a full gap analysis, contact Padda Consulting. We offer expert advice, guidance, and insights on the FCA’s findings and consultation.