The Financial Conduct Authority (FCA) has told financial firms to do more to ensure parliamentarians, senior public servants and their families aren’t treated unfairly.
In a warning to financial services providers – including banks, payment processing firms and lenders – the FCA said they should not disadvantage people running for office or taking senior public roles.
The City regulator’s intervention follows the debanking of Nigel Farage by Coutts last year, when an internal risk committee decided his friendship with Donald Trump, along with his perfectly lawful views on Brexit, LGBT rights, and many other contentious contemporary issues, “do not align with our values”.
At the time, some senior banking industry figures speculated that the closure was likely to have been linked to his status as a politically exposed person (PEP), and claims made using parliamentary privilege in the House of Commons by Labour MP Chris Bryant – for which he has since apologised – that the former UKIP leader had received payments from Moscow’s state-funded broadcaster, Russia Today.
For several years before the Farage debanking row, charity groups and dissident politicians had warned they were being caught by banks de-risking their exposure to politically sensitive customers.
Following an industry rush to comply with tougher money laundering laws in the wake of the 2007-08 financial crisis, as well as intense regulatory scrutiny following revelations about British bank Standard Chartered’s role in conspiring to violate the International Economic Powers Act by money laundering for Iranian clients between 2007 and 2011, UK banks are believed to have categorised as many as 90,000 UK citizens as PEPs.
PEPs now include MPs and other public figures that aren’t criminals, but that are deemed vulnerable to bribery or blackmail. Under anti money-laundering regulations, banks must implement extra layers of scrutiny in such cases to avoid the risk of corruption.
When the PEP system came into force in the UK under the Money Laundering Regulations 2007, it referred to people with a prominent public position “other than [in] the United Kingdom”.
Following implementation of new EU directives via the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, the distinction between ‘domestic’ and ‘foreign’ PEPs appears to have been lost – this despite current FCA Guidance stating that UK PEPs “should be treated as low risk, unless a firm has assessed that other risk factors not linked to their position as a PEP mean they pose a higher risk”.
The FCA is currently consulting on changes to this guidance that will provide “clarity on how firms should apply the definitions of a PEP… in a UK context”, including that firms should not apply the PEP framework to local government, more junior members of the senior civil service or anyone other than the most senior military officials. Under this interpretation of the EU directives, the FCA say it will be “unlikely in practice that a large number of UK customers should be treated as PEPs”.
It’s a much needed clarification. In recent years, many banks appear to have taken it upon themselves to interpret the rule (and then the law) more widely, giving the system an inescapably political dimension.
Last year, for instance, the former Energy Secretary Grant Shapps revealed he and his entire family were de-banked because of his role in frontline politics. Speaking to the Telegraph, he warned that “anyone who decides to devote their life to public service is essentially at risk of being penalised by banks”.
The former Chancellor, Jeremy Hunt, backed calls to relax money laundering rules for those with a career in public life after revealing that he too had been refused a bank account with online provider Monzo due to being classified as a PEP.
A total of ten UK bans also previously turned away anti-Brexit campaigner Gina Miller’s political party, ‘True and Fair’. According to Miller, who came to prominence spearheading two successful legal challenges to the government over its handling of Brexit, a total of nine banks had turned down ‘True and Fair’ before it got an account with Monzo.
However, in July 2023 she was told by Monzo that the party’s account would close that September, with the message relayed without explanation via the bank’s app. Miller subsequently called on the FCA to step in, to ensure new political parties and MPs can access banking to be able to operate.
The FCA has now confirmed it has carried out a review, and that although “most firms” did not subject PEPs to excessive or disproportionate checks, “all firms could improve”. In “a small number of cases”, the regulator said it would be “instigating an independent and more detailed review of firms’ practices”.
Financial firms will also be told to ensure their definition of a PEP, family member, or close associate is “tightened to the minimum required by law”, that they must consider “the actual level of risk posed by the customer, and that they must “improve the training offered to staff who deal with PEPs”.
The FCA’s executive director of markets and international, Sarah Pritchard said: “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 added: “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. 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.”
The FSU has been campaigning against debanking since we were debanked by PayPal in 2022 and had persuaded the last Government to amend the Payment Services Regulations to make it harder for banks and payment processors to close customers’ accounts because they disapprove of their politics. Unfortunately, the statutory instrument that would have amended the regulations wasn’t laid before Rishi Sunak called a snap election.
In light of the FCA’s advice, we will be writing to Tulip Siddiq, the Economic Secretary to the Treasury and City Minister, to remind her that these amendments to the Payment Services Regulations enjoyed cross-party support and the present Government should now get on and make them.
