Asked by
To ask Her Majesty’s Government what was the outcome of their
review of money laundering regulations in respect of their impact
on politically exposed persons.
(Con)
The recent review of the money laundering regulations—MLRs—has
concluded that there should be no immediate change to the
requirements for domestic politically exposed persons. The review
commits to further work to better understand the risk profile of
domestic PEPs. If this is sufficiently low, the Government will
consider changing the MLRs so that enhanced due diligence is not
automatically required but instead triggered only when other
high-risk factors are present.
(Lab)
My Lords, most—probably all—Members of your Lordships’ House, and
indeed their children, have been extraordinarily inconvenienced
by the way the banks interpret the PEP rules, demanding to know
how many mortgages we have, how many necklaces we wear and things
like that. They assume that we are all crooks unless we prove to
the contrary, rather than assuming that we are not crooks until
something in our bank account— perhaps putting a case of used
fivers into the bank—suggests that we are money launderers. Not
only does that inconvenience us, but it takes away scarce
resources which ought to be looking at the people who are really
bringing untoward money into our financial sector. Could the
Minister just move a bit faster on this? Can she assure us that
the old practice of subjecting us to these sorts of nonsenses
will not continue, and that, in future, we will be asked to
explain our wealth only if something very untoward is happening
in our bank accounts?
(Con)
My Lords, as I set out, the Government are looking at further
evidence around changing the money laundering regulations so that
enhanced due diligence is not automatically required for domestic
politically exposed persons. In the meantime, I know that a round
table was held with the noble Baroness and, I believe, the noble
Lord, , to discuss some of these
matters. My honourable friend the Economic Secretary will shortly
be writing to all MPs and Peers on this issue to provide
increased clarity to parliamentarians on the requirements placed
on financial institutions regarding PEPs and the steps they can
take to remedy any issues they may have with their banks.
(Con)
My Lords, may I reinforce the Question asked by the noble
Baroness, Lady Hayter? Over the last few years, I have received
well over a dozen highly intrusive requests under the money
laundering regulations. As a consequence, I studied both the
regulations and the guidance, and I was in correspondence with
Andrew Bailey when he was at the FCA and saw one of his senior
officials. The plain truth is that the investment companies
overinterpret—when they do not misinterpret—the regulations and
ignore the guidance. They do not adopt a risk-based approach,
they are not proportionate in their requests and they do not have
access to publicly available sources of information, all of which
is required by the regulations. They state they are required by
law to obtain this information—which is not true—and, worse, they
say that they will not release funds unless the intrusive
information is provided. That is unlawful. This has to stop.
Might I suggest that it is referred to a Select Committee of
Parliament?
(Con)
My Lords, it is for the Select Committees of Parliament to
determine what they wish to investigate. However, I agree with my
noble friend: he is absolutely right that firms are required to
adopt a risk-based approach when deciding whether to apply
enhanced due diligence. People who feel that they have been
treated unfairly by firms have a route of redress via the
Financial Ombudsman Service. However, as I said, my honourable
friend the Economic Secretary will also be writing to
parliamentarians to set out steps that they can take to remedy
any issues that they have had with their banks where they feel
that the action taken has been disproportionate.
(Lab)
My Lords, with the greatest respect to the noble Baroness, it is
not for us to have to pursue this; it is for the Government to
sort it out. Can she tell us what they are doing to stop the
banks not taking the risk-based approach that she suggested they
should take? They are acting on a wholly risk-averse basis and it
is down to government to sort it out.
(Con)
My Lords, the Government are engaging with banks on this matter.
A round table was held on 4 March this year. At that meeting,
banks reaffirmed their commitment to following the 2017 FCA
guidance, which supports banks in treating most domestic PEPs as
lower-risk. Therefore, we have engaged with the banks on this
matter and we are committed to doing that further piece of work,
an evidence review, to see whether the automatic checks that need
to be applied to domestic PEPs could be removed.
(LD)
My Lords, of course we have to be tough on money laundering but a
whole industry has been spawned that scans for PEPs
internationally. Will the noble Baroness take this message on a
risk-based approach to her various colleagues in other countries?
I am getting quite tired of American relatives living in Germany
being unable to open accounts because of their relationship with
me, when I have no idea how I am even linked to them unless,
frankly, data is being abused.
(Con)
My Lords, the United Kingdom Government are always happy to
advocate for a risk-based approach in regulating financial
services and will continue to do so. The noble Baroness and other
noble Lords will know that the obligations around politically
exposed persons derive from international obligations from the
Financial Action Task Force, so it is important that we continue
to meet those standards and obligations internationally.
(Con)
My Lords, I believe that contributions this afternoon have shown
how the vast majority of people are fed up with anti-money
laundering regulations, which burn up a lot of effort and money
to no purpose. However, far worse than that is the idea of
politically exposed persons. I wonder how many noble Lords today
have had a difficult time opening bank accounts and other such
matters. I hope to see reform, particularly following the recent
review, which should start with simplifying the idea of
politically exposed persons.
(Con)
My Lords, anti-money regulations play an important role in
tackling economic crime, which I know is a subject that this
House cares strongly about. We recently concluded a review of our
anti-money laundering regulations and their effectiveness. We are
committed to a piece of work on politically exposed persons, but
the main conclusions from that review were about how we regulate
professional services, and we will consult on our proposals for
reform there to consider how we can improve our anti-money
laundering regulations. I think everyone would agree that they
are essential to protect against financial crime.
(Lab)
My Lords, this has been going on for at least a decade, to my
knowledge, so the Government are moving with extraordinary sloth.
First, can we have a guarantee that this review will be published
so that everyone can see it? Secondly, will the Minister examine
the implications for voluntary organisations led by or are
involved with politically exposed persons?
I have a personal experience: Metro Bank decided that an
organisation that I chair and which has a board consisting of
three politically exposed persons and one other—who is,
incidentally, an emeritus professor of engineering and a former
Chief Scientific Adviser to the Government—was somehow beyond its
risk appetite. The rule is being applied in a blanket way without
the sort of assessment that the Minister and her many
predecessors have stood at that Dispatch Box to assure us will be
the case.
(Con)
My Lords, my understanding is that the original measures on PEPs
were put into UK law in 2017, so the timescale is slightly
different from that set out by the noble Lord, but I absolutely
take his point on action that needs to be taken. That is why we
have continued to follow up with banks about taking proportionate
action under the current regulations and are looking at whether
they can be amended, but we need a strong evidence base to take
that action.
(Con)
My Lords, as one of those involved in the drafting of the
anti-money laundering directives—and, unfortunately, often
described by colleagues as an expert in money laundering, as
opposed to anti-money laundering—I point out to my noble friend
that we fought very hard to ensure that the implementation of the
directive would be proportionate. That word was as the result of
British initiatives. It seems to me that the Financial Conduct
Authority, in its further directions to our banking institutions,
has failed to carry through the importance of proportionality and
has therefore allowed the banks and others to behave in the way
they are now, which is utterly unreasonable.
(Con)
My Lords, after the original transposition of the regulations,
further guidance was issued by the FCA to emphasise exactly the
point my noble friend makes about action being risk-based and
proportionate. Clearly, there are still issues in taking that
forward. That is why we continue to engage with the FCA and banks
on this. We will also be engaging with parliamentarians on the
route to contact their banks where they think they are not
following the very sensible, proportionate approach for which the
UK advocated in the EU.
