U.K. Financial Regulator to Review Bank Treatment of Politically Exposed Persons

The U.K.’s financial regulator is reviewing whether the country’s institutions are being too tough on individuals with political exposure, a move that follows a controversial decision by a private bank to drop Brexit campaigner Nigel Farage as a customer.

The Financial Conduct Authority said Tuesday it would look into whether domestic politically exposed persons—those entrusted with a prominent public function—might be getting unfairly cut off from banking services. 

“Individuals may find themselves excluded from products or services through no fault of their own,” the FCA said. “As well as potential unfairness, this also potentially harms the reputation of the U.K.’s financial services sector.”

The agency intends to publish the results of its review in June 2024, but it said it could take action against banks sooner if it identifies problems with any institution’s policies.

The normally quiet, back-office function of evaluating clients for their riskiness has drawn intense scrutiny in the U.K. since July, when Farage said that he was dropped as a client of Coutts, a private bank to the royal family and other wealthy elites, because of his political views. 

Farage, a former leader of the UK Independence Party and campaigner for Britain to leave the European Union, later released a document that showed a Coutts risk committee deemed him a potential problem for the bank’s reputation. 

International anti-money-laundering standards require that banks give extra attention to politically exposed persons. PEPs could abuse their positions for personal gain, and banks are required to be on the lookout for unusual transactions that might indicate attempts to launder illicit funds.

Since the Farage scandal, the FCA has been examining bank decision-making for signs of political motivation. The agency on Tuesday said banks should be managing PEP-related risks “proportionately,” adding that it would look in particular at decisions to reject or close accounts.

The FCA said it would also be evaluating feedback from PEPs and their families, and complaints to the Financial Ombudsman Service. The FCA said it would consider taking action against any problem banks before its review wraps up next year.

The Coutts document that Farage released, minutes of a meeting of the bank’s Wealth Reputational Risk Committee, described Farage’s views as “xenophobic and racist” and said he was “considered by many to be a disingenuous grifter.” Farage acquired the document through a type of public information request.

Alison Rose, chief executive of Coutts’s parent company, NatWest Group, subsequently resigned under pressure from the U.K. government, which holds a 39% stake in NatWest. Rose said she made “a serious error of judgment” in talking to a BBC journalist about the decision by Coutts to close the account. A BBC story, published before Farage released the bank’s minutes, said his account was closed because he fell below the bank’s financial threshold.

A NatWest spokesman didn’t respond to a request for comment Tuesday. NatWest Chairman Howard Davies said in July that the handling of the Farage situation was “unsatisfactory” and said the board had begun an independent review.

Write to Richard Vanderford at [email protected]