Treatment of domestic PEPs
UK law requires “gatekeepers” to the financial system to perform enhanced checks on politically exposed persons (“PEPs”), their families and their known close associates. Such firms need to have measures in place to identify PEPs, assess the level of risk they pose, and manage the relationship appropriately. Under the current regime, both UK domestic and foreign PEPs are treated alike. Criminal and regulatory sanctions are enforced for non-compliance.
However, PEPs, including British politicians, have criticised the current regime and its application, arguing that it results in excessive due diligence requirements being imposed upon them, their families or their close associates by banks and other firms.
The House of Commons Library published a research briefing in February 2022 stating that the Government is “undertaking a review on the anti-money laundering regulations” regarding the level of due diligence that should be applied to UK domestic PEPs, their families and their known close associates. The outcome of this review is due imminently.
Regulatory Permissions: New powers support FCA’s ‘use it or lose it’ initiative
The FCA is to use new powers to more swiftly cancel or change what regulated activities firms are permitted to undertake. This new power is available following a change in the law allowing the FCA to streamline and shorten the removals process. The FCA will provide a firm with two warnings if it believes it is not using its regulatory permission. The FCA will then be able to cancel the permission, or change it, 28 days after the first warning if the firm has not taken appropriate action. This will strengthen consumer protection by reducing the risk of consumers misunderstanding or being misled about their exposure to financial risk and how much consumer protection they have. For example, believing unregulated activities are covered by the Financial Services Compensation Scheme when they are not.
The new expedited process will also allow the FCA to act quickly when cancelling a firm's permission when it is no longer required and to swiftly respond to inappropriate uses of permission. For example, when a permission is being wrongfully used to market high risk products that are not regulated by the FCA.
Strengthening measures to tackle money laundering and terrorist financing
The Financial Action Task Force (“FATF”) has now re-rated the UK on Recommendation 13 from partially compliant to Compliant. Today, the UK is compliant on 24 Recommendations and largely compliant on 15. The country remains partially compliant on 1 Recommendation (R.29).
Since the adoption of the mutual evaluation report, the UK has made some progress in order to expand its ability to conduct operational analysis by initiating the SARs Reform Programme, a multi-year programme that includes an information technology transformation and expansion of the UK Financial Intelligence Unit. However, the expansion from 81 to 141 staff at the Financial Intelligence Unit is still insufficient given the size of the UK financial sector, a growth in SARS filed by over 270,000 in the last three years.
In addition, the planned changes to the IT systems, which will likely significantly expand the ability of the UK to conduct operational analysis, are not yet operationalised to the degree necessary to bolster its operational analysis to a significant degree.
