Compliance
UK Calls Financial Firms To Treat PEPs Fairly After 2023 Debanking Storm

The FCA wants financial firms to be careful about the way they handle politically exposed persons. Its recommendations stem from controversy last year over the debanking of a political leader, and similar cases involving a number of other people in the public eye. Separately, there are concerns over the reasons why banks shut accounts.
The UK’s Financial
Conduct Authority has told financial firms – including banks,
payment firms and lenders – to do more to ensure that
parliamentarians, senior public servants and their families are
not treated unfairly.
The watchdog is acting after last year’s controversy over
Coutts debanking Nigel
Farage, who is now leader of the Reform Party and a Member of
Parliament.
The FCA said that while it found that most firms did not treat
politically exposed persons (PEPs) with undue severity, it
said they should ensure that their definition of a PEP, family
member or close associate is tightened to the minimum required by
law and not go beyond that.
“Public service naturally comes with greater scrutiny. But it
must be proportionate and shouldn’t disadvantage people running
for office or taking senior public roles, or their families,”
Sarah Pritchard, the FCA’s executive director of markets and
international, said. “That requires a balancing act. Most firms
try to get it right but there is more they can do. We’re
following up with those firms that were getting the balance wrong
to ensure they make changes.”
“We have heard directly from some parliamentarians about the
problems they and their families have faced. We have been clear
where we expect firms to make improvements, including in how they
communicate with their customers,” she said.
In other steps that firms should take, the FCA said they should
review the status of PEPs and their associates promptly once they
leave public office; tell PEPs effectively and in line with the
Consumer Duty,
explain the reasons for their actions where possible;
effectively consider the actual level of risk posed by the
customer, ensuring that information requests are
proportionate to those risks; and improve the training offered to
staff who deal with PEPs. (The Consumer Duty is designed to
improve how financial firms serve clients, and came into force
last July.)
The Farage episode
Last summer, Farage, who had been a client of Coutts – part of
NatWest Group
– complained about how Coutts had offloaded him as a client,
alleging that he had been targeted for his views on issues such
as climate change, Brexit and immigration. At one point, there
was speculation on whether Farage was classed as a PEP. He was
not an MP at the time of the controversy last year. He has been
an MP since 5 July. Prior to this, Farage had been a member of
the European Parliament, leaving it after the UK voted for
Brexit. (See the
editor's comment on this issue.)
The saga led to the resignation of NatWest CEO Dame Alison Rose
and Coutts CEO Peter Flavel, following anger at how the banking
group had handled Farage’s case. (Rose was criticised for
discussing the case with a journalist.) Figures including former
Prime Minister Rishi Sunak called for authorities to act. It
emerged that other political figures, such as anti-Brexit
campaigner Gina Miller, had been debanked. Dominic Lawson, the
son of former UK Chancellor, Nigel Lawson, wrote that he had
struggled to open a Barclays account for his daughter. (He was
later able to do so.)
Under legislation adopted by Parliament, financial firms are
required to do extra checks on PEPs. This follows global
standards set by the Financial
Action Task Force and implemented by more than 200
jurisdictions.
Some firms have already started to make improvements following
the change in January 2024, which made the legal starting point
that UK PEPs and their associates present a lower level of risk
than foreign PEPs, the regulator said.
In a small number of cases, the FCA is instigating an independent
and more detailed review of firms’ practices, it said.
The FCA said it will continue to monitor how firms
handle PEPs. If these people are unhappy, they can complain
to the firm and then the Financial Ombudsman Service. Some firms
also have dedicated points of contact for PEPs. (See a story
here from last year about the FCA's review of the
matter.)
Over the top?
Separately, the UK’s think tank, Institute
of Economic Affairs, recently criticised de-banking in the UK
and the way that AML laws operate in a report in 2021/22. UK
banks closed 343,000 accounts. In about half of those cases, the
reason was that the bank could not satisfy itself that the
customer was not involved in money laundering or other financial
crimes, the report said. Out of all those debanked in that period
only 1,083 people in the UK were convicted of money laundering
(HM Government 2023: 10). In the same year, banks closed the
accounts of about 170,000 people who did not satisfy their AML
due diligence (this being half of the 343,000 accounts closed in
total).
“This means that about 169,000 people were effectively fined a
non-negligible sum for money laundering on the basis of evidence
inadequate even for arrest, let alone conviction. The situation
ought to be intolerable to a government committed to the rule of
law,” Jamie Whyte, author the IEA report, said.
On the PEP issue, Whyte said the number of political account
closures is probably small, because few people are PEPs and “few
people express political opinions misaligned with the ideological
commitments of their bank in a way that would come to their
bank’s attention.”
“The FCA’s recent survey of UK financial firms regarding their
reasons for closing accounts did not answer the question. The
four cases where banks initially said they closed accounts
because of the political views of customers turned out to be
caused by threatening or abusive behaviour by the customer.
However, banks said they closed many more accounts for reasons of
reputational risk,” Whyte wrote.
In other comments, Whyte said: “Banks are not crime-fighting
agencies. They are profit-seeking businesses. Their
decision-making is guided not by principles of justice but by
revenues and costs, including the cost of risk. This means that,
very valuable customers aside, they will be inclined to close the
accounts of customers who present some prima facie risk of money
laundering, even when they have evidence that falls well short of
the standard required to gain a criminal conviction for money
laundering.”