My Lords, under the money laundering regulations, a politically exposed person—a PEP—is defined as an individual who is entrusted with prominent public functions, including Members of Parliament or similar legislative bodies. In July 2017, the Financial Conduct Authority published guidance on PEPs, which stated that UK PEPs should be treated as lower risk unless other risk factors applied. Firms are required to apply enhanced due diligence to all PEPs on a risk-sensitive basis.
My Lords, it seems that genuine money launderers can bring in foreign money and buy up property with no disclosure of ownership, but we PEPs get this ridiculous six-page questionnaire, which I have just received, wanting to know about my past employers, my family wealth—I have not got any—my lottery wins, my jewellery, and not just my car but “cars”; I have only got one. Many of your Lordships have approached me to say that they and their families have been similarly inconvenienced. The Minister has just reflected that the FCA guidance says that the exposed person should be treated as low risk, but that is not what is happening. Will the Minister meet me and other affected Peers, along with Treasury and FCA officials, to discuss this, so that banks can spend rather more of their time catching the real crooks instead of wanting to know about my—I am afraid—John Lewis jewellery?
I have a lot of sympathy with the issues raised by the noble Baroness. The Government are committed to tackling the threat posed in the UK by economic crime, but it is imperative that we minimise the burden placed on legitimate businesses and customers. I hope that I can give some assurance to the noble Baroness that the Treasury and the FCA are working together to consider what more can be done in this space, and, where possible, to engage further with banks and firms on how they could interact with their customers who are PEPs. We would be very happy to have a further call or meeting with the FCA to discuss this further.
My Lords, with impeccable timing, my building society wrote to me yesterday to say that it was reviewing its approach to PEPs, following my throwing my toys out of my pram when it emailed me and my 83 year-old mother to ask, among other things, about my casino winnings. It is quite clear that the banks and building societies are ignoring the FCA’s advice, which is to approach each person as an individual and assess the risk individually. I therefore commend the Minister for reminding them of their obligations and look forward to joining the noble Baroness’s meeting. The only silver lining to come out of this debacle is that it is only since joining your Lordships’ House that I have become a politically prominent figure.
The guidance provides clarity on how firms should apply the definitions of a PEP in the money laundering regulations in the UK context. This includes providing that firms should treat only those in the UK who hold truly prominent positions as PEPs and not apply the definition to local government, more junior members of the senior Civil Service or any military officials other than the most senior. On casinos, my noble friend will know that they are regulated by the Gambling Commission. Again, I offer my sympathy with the points raised.
My Lords, like many others, I and my family have suffered delays and significant loss of services because of the poor and inconsistent interpretation of this measure, which might be founded on good sense but is being applied poorly. The FCA is currently preparing to introduce a duty of care—a new approach to the way in which financial institutions are meant to deal with their customers. Does the Minister agree that the fundamental change of approach configured by that provides us with another opportunity to get this issue sorted once and for all?
Again, this is further anecdotal evidence that has come forward. In line with the FCA guidance on PEPs, in lower-risk situations a firm may take measures to simplify the enhanced due diligence checks. This should include seeking to make no inquiries of a PEP’s family or known close associates, or taking less intrusive and less exhaustive steps. The oversight and approval of the relationship takes place at a level less senior than board or director level. I hope that the meeting that has been mooted will iron out these issues, but clearly they are there.
As other noble Lords have said, the banks continue to break the guidelines on how to treat UK PEPs and their families. The guidelines were set out four years ago and were very clear. Despite that, Nationwide wrote to my daughter last month—as well as to the noble Baroness, Lady Hayter—asking her for enormous and intrusive financial detail. There was a six-page questionnaire to be filled in, and a warning that if she did not fill it in, her account might be closed. That is a clear breach of the FCA guidelines. Can the Minister say what the point of guidelines is if they are not enforced and what sanctions can be imposed on offenders?
Although the guidelines were updated in 2017, as the noble Lord will know, clearly there is more work to be done on the proportionate way in which PEPs can be handled. As the noble Lord will know, from April 2018 the Financial Ombudsman Service has had jurisdiction to consider complaints about the treatment of PEPs. Since then, the ombudsman has received fewer than 10 complaints in this area, but I am not being complacent about this matter.
My Lords, I think we are all asking the same question, but it is a question worth asking. Looking into this, I note that the legislation relating to it is the money laundering regulations 2017. I find SIs impenetrable but I find the Explanatory Memorandum more useful. Paragraph 7.16 of the Explanatory Memorandum is so clear:
“The Regulations require firms to assess the risk posed by individual PEPs on a case-by-case basis and tailor the extent of EDD”—
enhanced due diligence—
On the prior point, it states:
“Refusing to establish a business relationship or carry out a transaction with a person simply on the basis that they are a PEP is contrary to the letter and the spirit of the law.”
How do Her Majesty’s Government ensure that this requirement is met?
To be upfront about it, the Treasury is responsible for the money laundering regulations but the regulations are not prescriptive in setting out how firms should carry out customer due diligence. Instead, they require firms to take a proportionate approach commensurate with their assessment of the risk. As I said earlier, clearly there is more work to be done. Customer due diligence allows firms to obtain reasonable satisfactions that customers are who they say they are and that there are no legal barriers, but clearly there is more work to be done on PEPs.
My Lords, for curiosity’s sake, is this a UK-wide catch-all? Are Nigerian politicians, for example, with bank accounts in the UK deemed to be politically exposed persons under this arrangement? Many in your Lordships’ House, if not all, appear to be caught up in this classification. Will the Minister kindly accept that the banks are looking for one thing but are not receiving it—the necessary clarity and guidance and, by the by, urgent regulatory reform? Is the FCA at fault? If not, who controls the regulator?
Of course, what we are talking about today is the behaviour of banks and firms and the proportionate nature of what they should be doing. I say in response to the question from the noble Viscount that the UK remains and must remain at the forefront of international anti-money laundering standards. We have played a leading role in tackling corruption and illicit finance internationally. This is evidenced by the fact that our regime was found to be the strongest out of almost 100 countries. But the other side of the coin is customers, and clearly a more proportionate standard needs to be taken.
My Lords, I support the points made by previous questioners. I seek an assurance from the Minister that banks will not pass on information that they acquire in this way for marketing and other purposes. That is not acceptable. What contact have the Government had with other countries? I understand that some countries provide much more of a light touch, particularly on public representatives who have never previously given rise to suspicion and who fill in their tax returns and fulfil their obligations generally.
Indeed. We are a strong member of the Financial Action Task Force, so we are in touch with other countries about what they do. As I said earlier, we have one of the strongest regimes, but it is up to us in the UK, particularly now that we have left the EU, to review how we operate. By the way, the noble Baroness will know that we are undertaking a review on the anti-money laundering regulations, which will report in June 2022.