Politically exposed people (PEPs) have „received increased notoriety” following Russia’s invasion of Ukraine – but they can come from „all countries and regimes”, an expert tells Sky News.
News reporter @LaraKeay
Wednesday 19 July 2023 17:20, UK
Nigel Farage has claimed his bank account was closed because his views and friendships with the likes of Donald Trump and Novak Djokovic „do not align” with his bank’s „values”.
The former Brexit Party leader says he has a 40-page document that proves Coutts „exited” him because he is regarded as „xenophobic and racist” and a former „fascist”.
He previously claimed that a subject access request he made to the bank, whose clients include members of the Royal Family, reveal it regards him as a PEP or ‘politically exposed person’.
Coutts has said that decisions around account closures „are not taken lightly” and „commercial viability, reputational considerations and legal and regulatory requirements”.
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What is a PEP?
A politically exposed person (PEP) is someone who holds or has held public office and therefore may be more susceptible to bribery or corruption.
According to the Financial Conduct Authority (FCA): „A PEP may be in a position to abuse their public office for private gain and a PEP may use the financial system to launder the proceeds of this abuse of office.”
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Examples include heads of state, ministers, members of parliament, members of supreme or other courts, board members of central banks, and high-ranking officers of the armed forces.
Relatives, friends and associates of the above can also be considered PEPs, because, the regulator says: „Likewise a PEP’s family or close associates may also benefit from, or be used to facilitate, abuse of public funds by the PEP.”
Steve Goodrich, head of research and investigations at Transparency International UK, says the PEP regime is focused on „kleptocrats, oligarchs and serious organised crime groups moving funds through the UK economy”.
Are banks allowed to close their accounts?
If someone is identified as a PEP the Money Laundering, Terrorist Financing and Transfer Funds Regulations (2017) require their bank or financial institution to take „enhanced due diligence measures”.
These include getting senior managers to approve the business relationship, regularly monitoring it, and establishing where their money is coming from. They will then be classed as either low or high-risk.
Lower-risk PEPs will only require basic monitoring, but higher-risk ones may prove too unsafe.
There has been widespread criticism of the current regime around PEPs. As a result in 2017 the FCA carried out a review in which it reinforced the right of PEPs to retain their bank accounts.
It said: „The FCA expects that a firm will not decline or close a business relationship merely because that person meets the definition of a PEP.
„A firm may, after collecting appropriate information and completing its assessment, conclude the risks posed by a customer are higher than they can effectively mitigate.
„Only in such cases will it be appropriate to decline or close that relationship.”
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But Mr Farage’s case has brought further criticism that the 2017 review didn’t go far enough.
The Treasury has said last month’s new Financial Services and Markets Act will ensure „the right balance can be struck between the customer’s right to free speech and the bank’s right to manage commercial risk”.
And Sky News has learned that further secondary legislation due to be unveiled soon will require banks to give customers three months’ notice of account closures and to provide a full explanation.
In its statement, Coutts said Mr Farage was „offered alternative banking arrangements within the wider group” – which is owned by NatWest.
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Why could Nigel Farage be considered a PEP?
Nigel Farage hasn’t held political office as an MEP since the UK left the EU in 2020 and he ceased being leader of the Brexit Party (now Reform UK) in 2021.
The Brexit Party didn’t win any seats at the last general election in 2019 and Reform UK only won a handful of seats on Derby City Council in this year’s local elections. UKIP, its first name, lost all its councillors – down from 500 in 2016.
According to the FCA’s latest guidance, the definition of a PEP as a „member of governing bodies of political parties… only applies to political parties who have some representation in a national or supranational parliament”.
But it adds that if the PEP is „no longer entrusted with a prominent public function” they should still be subject to enhanced checks for „at least 12 months”.
When Mr Farage first claimed his Coutts account had been closed earlier this month, he said it could have been because Labour MP Chris Bryant claimed he received money from Russia.
Using parliamentary privilege, Mr Bryant told the House of Commons Mr Farage was paid £550,000 by Russian state broadcaster RT.
Mr Farage denies this and Mr Bryant has not repeated the claims outside the Commons.
Anyone with links to Russia could be considered a high-risk PEP as it is „associated with high levels of corruption, armed conflict, non-democratic forms of government” among other criteria set out by the FCA.
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But Mr Goodrich says there is a „question mark” over Mr Farage’s PEP status.
„Coutts has had and still has some very high-risk customers that are far higher-risk than Nigel Farage,” he tells Sky News.
„From a money laundering perspective, I’m asking myself why Coutts would do that – and why now – when the allegations have been around for a while.
„We’ve seen his narrative shift a bit, from ‘it’s because I’m a PEP’ to ‘the global liberal elite is trying to cancel me.”
Drawn on the debate on Wednesday, various politicians have responded along similar lines, with Rishi Sunak saying: „No one should be barred from using basic services for their political views. Free speech is the cornerstone of our democracy.”
Who else has had problems?
Following Mr Farage’s initial Twitter posts about his Coutts account, Daily Mail columnist and historian Dominic Lawson claimed his daughter had been denied two bank accounts because her grandfather was the late Nigel Lawson – the Conservative chancellor – and his wife’s brother is a viscount.
He described the decisions – by Barclays and HSBC – as „absurd and perverse”.
The Financial Service and Markets Act now distinguishes foreign PEPs from domestic ones to „allow the lower risk of domestic PEPs to be appropriately reflected” in FCA guidance.
Mr Goodrich says this has come after „frustration” among some MPs and their families over „stringent financial checks”.
Abroad, Martin Cheek, managing director of digital compliance platform SmartSearch, says that PEPs have „received increased notoriety” following Russia’s invasion of Ukraine – but they can come from „all countries and regimes”.
But he notes that unlike the former Brexit Party leader, they „often remain faceless names on financial accounts”.
Mr Goodrich agrees, adding: „You don’t usually get people shouting from the rooftops that their bank accounts have been closed down,” which he says makes Mr Farage’s claims „strange”.
Speaking to Sky News, energy security minister Grant Shapps and Treasury minister Andrew Griffiths put pressure on the FCA to „get a grip” of issues with the PEP regime.
An FCA spokesperson responded in a statement: „While who banks do business with is ultimately a commercial decision for them, they should treat people fairly and ensure they meet their responsibilities under equality legislation.”
