Amendment 96

Financial Services and Markets Bill - Report (3rd Day) – in the House of Lords at 3:45 pm on 13 June 2023.

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Baroness Penn:

Moved by Baroness Penn

96: After Clause 71, insert the following new Clause—“Politically exposed persons: money laundering and terrorist financing (1) The Treasury must exercise the power conferred by section 49 of the Sanctions and Anti-Money Laundering Act 2018 (power of appropriate Minister to make regulations about money laundering etc) for the purpose mentioned in subsection (2).(2) The purpose is to make provision amending Part 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692)(“the 2017 Regulations”) (customer due diligence) so as to secure the result required by subsection (3).(3) The result required by this subsection is that, where a customer is a domestic PEP, or a family member or a known close associate of a domestic PEP—(a) the starting point for the relevant person’s assessment under regulation 35(3) of the 2017 Regulations is that the customer presents a lower level of risk than a non-domestic PEP, and(b) if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non- domestic PEP.(4) In this section—(a) “customer” includes a potential customer;(b) “domestic PEP” means a politically exposed person entrusted with prominent public functions by the United Kingdom;(c) “enhanced risk factors”, in relation to a customer who is a domestic PEP or a family member or a known close associate of that domestic PEP, mean risk factors other than the customer’s position as a domestic PEP or as a family member or known close associate of that domestic PEP;(d) “non-domestic PEP” means a politically exposed person who is not a domestic PEP;(e) the following terms have the same meaning as in regulation 35(12) of the 2017 Regulations—“politically exposed person” or “PEP”;“family member”;“known close associate”.(5) Section 55 of the Sanctions and Anti-Money Laundering Act 2018 (Parliamentary procedure for regulations) does not apply to regulations made in compliance with the duty imposed by subsection (1).(6) Regulations made in compliance with the duty imposed by subsection (1)—(a) are subject to the negative procedure, and(b) must be laid before Parliament in accordance with paragraph (a) before the end of 12 months starting with the day on which this section comes into force.(7) The Treasury must, before the end of 6 months starting with the day on which this section comes into force, lay before Parliament a statement setting out what progress has been made towards making the regulations in compliance with the duty imposed by subsection (1).(8) The duty in subsection (7) does not apply where the regulations have been laid before Parliament in accordance with subsection (6)(a) before the end of 6 months starting with the day on which this section comes into force.”Member’s explanatory statementThis new Clause would impose a duty on the Treasury to amend the money laundering regulations with the effect of ensuring that a politically exposed person who is entrusted with a prominent public function by the UK (or their family members or known close associates) should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

My Lords, there has been significant discussion throughout the passage of this Bill, and more broadly in parliamentary debates, around the treatment of politically exposed persons—PEPs—under the money laundering regulations. Noble Lords have made many valuable contributions on this issue, sharing their personal experiences and those of their family members. I appreciate the concern expressed across this House that noble Lords and their family members can face disproportionate treatment as a result of their PEP status, including burdensome requests for information and even being prevented from accessing financial services. The Government are clear that action is needed to address this. In looking at this issue, we have sought to balance the need to maintain our adherence to the international standards in this area, as set by the Financial Action Task Force, with the need to ensure proportionate treatment of PEPs.

Therefore, the Government are tabling amendments to this Bill to achieve this in two areas. The Government are clear that domestic PEPs are lower-risk than foreign PEPs, and this must be reflected in both policy and practice. Noble Lords will be aware that while the money laundering regulations require all PEPs to undergo enhanced due diligence, the Government require the FCA to publish guidance on how banks and other financial institutions should meet this requirement. The FCA’s current guidance, published in 2017 following a provision introduced in the Bank of England and Financial Services Act 2016 with cross-party support, makes it clear that financial institutions should treat domestic PEPs as lower-risk than non-domestic PEPs in the absence of other high-risk factors.

If this distinction was comprehensively applied, it would strike the right balance between recognising the need to mitigate the risks that domestic PEPs face while preventing such protection becoming needlessly burdensome and disproportionately affecting both PEPs and their family members. However, the Government have heard the concerns and evidence provided in this area that this distinction is not being made consistently in practice and that some banks, in particular, are taking a blanket, one-size-fits-all approach, failing to take into account individual circumstances.

It is critical, therefore, to identify whether this is a systemic failure by banks to adhere to the FCA’s guidance. Therefore, Amendment 97 will require the FCA over the next 12 months to conduct, and publish the conclusions of, a review into how financial institutions are following its guidance. This review will also consider whether the FCA’s guidance on PEPs remains appropriate and Amendment 97 requires the FCA to amend its guidance if the review finds it necessary to do so. If the FCA finds that the guidance is no longer appropriate, it must publish draft revised guidance for consultation within the 12-month timeframe given for the review.

I recognise that some noble Lords have raised concerns about the FCA’s approach to this issue in the past. The amendment therefore requires the FCA to publicly set out, within three months, the terms of its review. As part of its review, the FCA will consult affected consumers to ensure that their views are taken into account. I have also today written to the FCA to set out the Government’s expectations of what the review should cover and have made it clear that the treatment of the family members of domestic PEPs is a key issue that must be properly considered as part of the review.

Amendment 96 clarifies that the risk associated with domestic politically exposed persons is generally lower than for non-domestic politically exposed persons. The Government have tabled this amendment to address the potential issue that the FCA’s guidance is not being fully adhered to, by seeking to place the explicit difference between domestic and foreign PEPs, currently established in guidance, into law.

The amendment will require the Treasury, within 12 months of Royal Assent, to amend the money laundering regulations to make it clear that the starting point for regulated firms in their treatment of domestic PEPs should be to treat them as inherently lower-risk than foreign PEPs, and to reflect this in the approach to due diligence measures that they use.

The Government will undertake a technical consultation with industry to ensure that the wording of the amendment has the desired effect. As this distinction is not currently present in legislation, it is crucial that necessary time is given for the Government to develop an approach that will lead to a significant impact on the behaviour of regulated firms that are not following the current guidance. To demonstrate to noble Lords that sufficient progress is being made, this amendment contains a legislative requirement for the Treasury to, within six months, provide Parliament with an update on the work that is being undertaken to deliver this change.

Amendment 119 provides that the provisions I have just detailed come into force on the day of Royal Assent.

I hope that, on the basis of the government amendments, noble Lords will feel that we have listened to and acted on their concerns, and that we are committed to ensuring that domestic PEPs are treated in an appropriate and proportionate manner, while effectively maintaining our anti-money laundering framework and remaining fully compliant with international best practice. I beg to move Amendment 96.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 4:00, 13 June 2023

My Lords, when I went home after the last time we discussed accountability of the regulators to Parliament, my wife said to me, “I was watching you speaking on TV and, very unusually, you were praising the Minister to the skies”. Here I am having to do it again. My noble friend Lady Penn, the Minister, has listened very carefully to all the points that have been made and has come forward in these amendments with a package that makes my Amendment 101 look rather feeble, for which I am extremely grateful.

I do not propose to spend much time talking about Amendment 101 but want to make just a couple of points. First, I declare my interest as a chairman of Secure Trust Bank. Secondly, it is not just the banks causing difficulty here; it is also credit card providers such as American Express, which seems to have been particularly heavy handed.

I have had an American Express card since 1979 and yet, only recently, I got an email which I assumed was a spoof that said I had to provide copies of my passport and bank statements, details of my investments and income, and my payslips—such as they are—to American Express within a certain number of days. I assumed this was some fraudster. Then I got another email telling me that my card had been suspended because I had failed to produce this material. When I rang American Express and said: “What is going on here?”, they said: “Unless you produce it, your card will remain suspended”. Of course, there were a number of payments on my card, which caused me some embarrassment.

That is a completely disproportionate use of the regulations. I am not even sure that some of the financial institutions are even looking at this work themselves. They may be contracting it out to other people who are simply involved in box ticking.

I will give another example from some years ago. My daughter had an account at the same bank as me, Coutts, and the manager said to her: “Is there any chance that you could move to another bank because you are such a pain to look after because your dad is a politically exposed person?”. In my view, that is an absolute disgrace. Our children find it difficult to get mortgages. People find it difficult on probate. What my noble friend is proposing today goes further than my amendment and I hope it will result in change.

There is a problem, however, in that the regulator is judge and jury in their own court on this matter, although I appreciate the measures which my noble friend has put in place to hold them to account. Of course, if we set up a committee of this House or a Joint Committee, I think this will be very high on the agenda if they have not actually dealt with it.

I have one slight niggle with Amendment 97 in my noble friend’s name, which is that she gives the FCA 12 months to publish. That seems an inordinate length of time. In the previous amendment we discussed today, my noble friend reduced the time to six months from 12 months. Perhaps she might reflect on whether it really needs 12 months to carry this out. At first, I thought it might be a move in the hope that perhaps there might be a general election and it might get lost in that and there might be a change of government and it might not happen. But one thing is clear: everyone on all sides of this House feels very strongly about this issue and I commend my noble friend for having taken this action, which I know has not been easy, and for the care with which she has listened to colleagues in coming forward with these proposed changes.

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee

My Lords, I shall speak to my Amendment 105 in this group. I express enormous gratitude to my noble friend the Minister for all the effort she has put in to resolving this problem in the last couple of years and now in this Bill. I have had a number of meetings with her, for which I am grateful. I have learnt much from her in the course of those meetings and in Committee. I think this is also an appropriate occasion for me to apologise for the fact that in Committee I insisted on one particular point of detail that I was right and, of course, it turned out on closer inspection afterwards that she was 100% right and I had got it wrong, so I apologise for that.

She has made sterling efforts, and what she is proposing today is welcome. None the less, those efforts—at least until we came to this debate today—have not been successful in scrapping a system which is cruel, capricious and unjust. In part, that is because of resistance in parts of the Civil Service. While I accept her proposal today, it worries me—I am wary—that 12 months is being sought in which to come forward with proposals which will resolve it definitively.

I would prefer, in principle, my Amendment 105. I am grateful for the support given to it by the noble Baroness, Lady Hayter of Kentish Town, the noble Lord, Lord Sharkey, and my noble friend Lord Forsyth of Drumlean—which I think pretty well represents most sides of the House.

The legal background, which my noble friend explained to some extent, is that this all originates with the Financial Action Task Force—an international group in which British officials play an important part. It is not binding. It is not law, but it is like a standard of good behaviour, if you like. I can understand why my noble friend and the Government at large wish to continue to adhere to those standards. I have no problem with that.

However, it is clear that the FATF—I am afraid that is the expression I am going to use for the Financial Action Task Force—recommendations make a distinction between domestic and foreign PEPs. It is difficult for the European Union to make such a distinction internally— I think the noble Baroness, Lady Bowles, who was involved with the European Union at the time, will confirm this—so when the FATF recommendations were incorporated into a European Union directive, that distinction between domestic and foreign PEPs was lost. So, as it was then transposed into UK law through the money laundering regulations, that distinction no longer appeared. However, it is clearly there in the FATF recommendations.

Since we are no longer obliged to adhere to the European Union directive, it is entirely possible for us, and entirely consistent with any sense of international obligation we have, to restore that original distinction. That is what my amendment would do in law straightaway. The FATF recommendation is that domestic PEPs should not be subject to the money laundering regulations unless they are in what is described as a “higher risk business relationship”. I have stuck very closely to that wording in my amendment.

It is also my view that when the Government come back in a year’s time, or maybe sooner—I hope it will be sooner; it does not have to be a year—they will end up more or less with my amendment. If they want to stick to the FATF recommendations and yet alleviate some of the burden on domestic PEPs, this is more or less where they will have to be. That is what I would prefer, but I am clearly not going to see it today.

I will add a few other points. As I say, I think my amendment is the standard against which within a year we will be judging what the Government come back with. There are a few other points not captured in the amendment that I think the Government have to address in the course of the review. First, at the moment, banks claim that the tipping-off provisions in the money laundering regulations mean that they cannot tell us when they are investigating us as PEPs. So, one gets these bizarre requests, as described by my noble friend Lord Forsyth, but if you try to have an intelligent conversation with them about what is going on, you are completely blanked and no explanation whatever is forthcoming. They claim that this is mandated upon them. I think that is possibly a misinterpretation, but in either event, it has to go. We have to be able to talk sensibly to people who are trying to make such inquiries if we are indeed within scope of them at the end of this process.

Secondly, it must be made clear to the banks that the closing or freezing of accounts should be very much a last-resort action, and only if there is already evidence of a suspicious transaction. It cannot be resorted to in the way that some banks have been doing. It is simply unconscionable that perfectly ordinary people who are family members—not necessarily Members of this House—are having their accounts closed down or frozen while investigations take place, when there is no evidential basis for doing so. It is simply, “Your turn has come round on the agenda to be inquired into”. Can my noble friend say whether we can look forward to any alleviation in practice during the next 12 months while we are waiting for this to happen, or is the full rigour of this unjust system to be persisted with while we are waiting?

I will deal with another point raised in Committee. We have been told that there are concerns in the Security Service that this system should remain in place. I have to say that I find that unconvincing. I can understand why the service might want to have a special legal right to some sort of access to the finances of people likely to be engaged in money laundering or terrorist financing—the activities at which all these instruments are aimed—but I would not myself populate that list with the King, members of the Royal Family, Members of the House of Lords, admirals, judges and former diplomats. Those are not the people I would instantly think of; I would probably populate it with people engaged in running brothels or Turkish barbershops or operating American sweetshops on Oxford Street. The Security Service might have a more fruitful time investigating and having a grip on these people, rather than those currently on the list. So I really do not accept that it is a very credible argument and I hope we will not hear any more of it.

I appreciate the efforts made by my noble friend and I have confidence in her, but we should be clear about the standards against which we will judge whatever the Government come back with over the next 12 months. My amendment does that, along with the other comments I have made, but, in the meantime, I will not be moving it.

Photo of Baroness Hayter of Kentish Town Baroness Hayter of Kentish Town Chair, International Agreements Committee 4:15, 13 June 2023

My Lords, it is exactly three months ago today that we debated this issue in Committee, when the Minister heard many examples of what had been going on. She has done rather more than any of her predecessors in acknowledging that there is a problem with how the AML rules are applied to PEPs and that change needs to happen—but she has gone even further and done something about it. I will not say that it is simply because she is a woman and that is what we do, but it is interesting that she has done it. As we heard, she has tabled Amendments 96, 97, 118 and 119, which she has outlined.

I have added my name, as the noble Lord, Lord Moylan, said, to Amendment 105, which goes a bit further and is more specific than the Government’s amendment. Ideally, they might have accepted it and made a carve-out for our family members; as we have heard, we may be guilty because we are here, but they have done nothing wrong and it is awful that they are caught by it. So I welcome the Minister saying in her introduction that the review will specifically look at whether it is possible to tweak that somewhat.

As I said in Committee, this has been going on for rather a long time. The noble Lord, Lord Flight, was the first noble Lord to raise it that I could find, in 2013, and I have been on about it since 2015, as the House knows. We have had Written Questions, Oral Questions, meetings, press coverage and all of that. In addition to the inconvenience for us, this has also meant that all these banks and others are wasting their time looking at our business instead of, as we have heard, at some other people. It is not just Amex and others; it is car purchase firms and everybody else inconveniencing us and wasting their time.

The Minister has acknowledged that it is time for legislation. The key part of her proposal is distinguishing between domestic and foreign PEPs and a requirement both on HMT and the FCA to do something. What the Government have done may not be perfect, but it is a real step forward. I think the Minister is well aware that we will keep a rather beady eye on what is happening, and we will be back here if nothing changes.

In the meantime, we should thank the Minister for what she has done. We have made a big step forward and I am delighted that the noble Lord, Lord Moylan, will not be pressing his amendment. It is right that we accept where we have got to with the Minister, and we will watch that being implemented.

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

My Lords, I have added my name to Amendment 105 in the name of the noble Lord, Lord Moylan, and I congratulate him on his determination and persistence. I do not quite understand his dislike of Turkish barbers, but we can deal with that some other time.

His amendment’s simplicity and its direct modification of the regulation is an appealing approach, as is the absence of the word “review”. I was very pleased to see the government amendments in this group, chiefly because, of course, they are government amendments. I am very grateful for the Minister’s clear and long-standing commitment to resolving, or at least ameliorating, the problem. I have only a couple of observations about the government amendments.

The explanatory statement to Amendment 96 says that UK PEPs

“should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them”.

The amendment itself, in proposed new subsection (3)(b), states that

“if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non-domestic PEP”.

Neither of those offers a definition or sets an upper limit to what this lesser form of due diligence should be. Is that decision to be left entirely to the financial services companies? If it is, can we reasonably expect uniformity of definition and behaviour?

Why would we expect the banks to significantly change their current behaviour? Would it not be more likely that they will simply water down some minor aspect of the diligence they currently feel is due and carry on otherwise much as they do now? In a way, that is what is happening anyway. The banks mostly ignore the FCA’s current guidance, as set out in paragraph 2.35 of FG17/6. The FCA, in response to that, applies no sanctions. Nowhere in the government amendments is there mention of sanctions for non-compliance with the new arrangements.

Given the rather cavalier disregard some banks have displayed towards the current guidance, do we not need some sanction for future non-compliance, or a way of making the FCA properly enforce its own guide- lines? What use are guidelines if they are not enforced? I would be very grateful if the Minister could say how a workable definition of “lesser due diligence” is to be arrived at and how the new regime may be enforced.

Photo of Viscount Trenchard Viscount Trenchard Conservative

My Lords, I declare my interest as a director of two investment companies, as stated in the register. I was interested to hear the remarks of my noble friend Lord Forsyth of Drumlean about American Express. He said that he had had a gold credit card with that company since 1979. Well, I had a gold card issued by American Express in 1978. I was very proud of having that card. I did not use it often, but it is one of those cards that clears automatically every month so there is no danger of running up unpaid debts and paying 20% or 30% interest.

In November 2021, I missed an email from them asking me for KYC information, including my passport details, proof of address and a utility bill, and I omitted to reply. I then got another email a month later—with no telephone call or letter through the post—saying that my account will be closed down. I telephoned them and, after waiting for three-quarters of an hour or so, I spoke to someone who agreed that they did not really need KYC information on me, but if I supplied it and uploaded it to their website, my account would not be cancelled, and all would be fine. I duly did that, but the account was still cancelled in about February 2022. I was not happy about this, because, as I said, I rather liked my gold card issued in 1978, so I took issue with them.

Over the past 15 months, I have spoken with them about six times; I have been on the chat function about six times. I now have two names of individuals and an email address I have been corresponding with, but my account is still cancelled—although they still send me a monthly statement through the post giving me a credit balance. I will print out the Hansard report of this debate and attach it to my next email to American Express, because I am not giving up on this.

Photo of Lord Clarke of Nottingham Lord Clarke of Nottingham Conservative

I will not make a speech giving my experience of American Express, but it is remarkably like that of my noble friends Lord Trenchard and Lord Forsyth. I decided that I could not be bothered with such outrageous burdens being placed on me. Having had my card from some time in the 1970s, I have allowed them to cancel it. Having heard of my noble friend’s experience, I am rather glad that I just let it go and reverted to using my Barclays visa card on all occasions.

Photo of Lord Naseby Lord Naseby Conservative

I will take my noble friends’ points further. My experience was identical to that of my noble friend Lord Forsyth. Frankly, I have cancelled the whole thing; Barclaycard does a far better job.

Photo of Viscount Trenchard Viscount Trenchard Conservative

Both my noble friends have a much more sensible approach to this matter.

I echo the other remarks of my noble friend Lord Forsyth, whose Amendment 101 I was minded to support. I too am most grateful to my noble friend the Minister for listening to the opinions of your Lordships expressed in Grand Committee. I added my name to Amendment 227 in Grand Committee, tabled by my noble friend Lady Noakes. Her amendment was debated on 13 March alongside Amendment 215, tabled by my noble friend Lord Moylan and other noble Lords. I would have added my support to my noble friend Lord Moylan’s Amendment 105, but it was too popular and there was no room.

My noble friend the Minister will recognise the disproportionate difficulties which UK PEPs must endure as a result of the money laundering regulations 2017. On balance, I would have preferred to be excluded by virtue of being a UK citizen, but my noble friend has decided that exclusions will apply to domestic PEPs, which does not sound so nice, but will achieve the same outcome.

Unfortunately, it will take years for British citizens resident abroad who are connected to UK PEPs to be released from similar regulations in many different jurisdictions. For example, my son has found it impossible to be appointed as a bank account signatory in Taiwan and South Korea. However, my noble friend the Minister’s amendment should make the life of UK PEPs easier. I am interested to see whether, in a year’s time, the amendment proposed by my noble friend Lord Moylan will be the triumphant, most successful and best one of these. In any event, I am most grateful to her for taking up this point, as she said she would.

Photo of Lord Eatwell Lord Eatwell Labour

My Lords, we seem to be predominantly discussing personal experiences at the moment, so I declare an interest as the former chairman of the Jersey Financial Services Commission.

The definition of a politically exposed person in Amendment 96 refers to persons

“entrusted with prominent public functions by the United Kingdom”.

Presumably, that would not apply to the Crown dependencies, since they are not part of the United Kingdom. I think that this is a mistake; it should be corrected by the Government, given the important role many UK citizens play in the Crown dependencies and in the financial services industry in the Crown dependencies. Would the Minister agree to take this away and see whether the omission of the Crown dependencies is just an error that has been made in drafting this amendment.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 4:30, 13 June 2023

My Lords I rise because this amendment allows me to do two things that I do not do very often. One is to thank the Minister because the amendments that she has brought forward are constructive, as others have described. The second is to say to the noble Lord, Lord Moylan: finally, a benefit from Brexit. One down, which pleases me, I have to say.

I want to ask the Minister if, in the course of the review, she will look at the industry that has mushroomed from the vetting of PEPs. I dealt with the American Express problem that others have described. I filled in my forms and still have my card—I am afraid that the BA miles win me over. I decided that I would open a savings account at Chase Bank as they were offering some good rates but discovered that I was caught up in this PEP process and the bank asked for a raft of information that, frankly, I should have never been asked for. The breaking point was a phone call asking me for payslips for my husband. On his death, I had inherited from him and therefore the bank wanted historical payslips. My husband died 17 years ago and I do not know how many people still have their payslips from 17 years ago, never mind those of a dead spouse.

To me, that was typical of the overstepping and exaggeration—gold-plating is almost an understatement —that has been going on in this process. It caused me to go on to the web and discover that there is a raft of consultants, advisers and legal entities that have become engaged in this process and taken straightforward guidelines from the FCA and blown them up into something extraordinary and complex. I am furious with the FCA because it does not enforce the guidelines; I hope the Minister will convey that and that the Government will become furious with the FCA for not enforcing its own guidelines. I hope that she will also encourage it to use the review to look at the vast industry that has burgeoned and makes its profits from making life an absolute misery for anybody it can catch in the system.

Photo of The Earl of Erroll The Earl of Erroll Crossbench

My Lords, I should like to add to this because I have had enough trouble with the PEPs issue for a long time. First, I thank the noble Lord, Lord Moylan, for explaining an important point about why I can get no information from Northern Trust on administering an investment trust in which my wife owned shares in Ireland. We had to get probity in Ireland, but the trust will still not release the money and will not say why. I am getting an absolute blind spot. Even Barclays, which wants money over here to pay off something does not seem to be getting any joy. I suspect that it is because the trust is not allowed to tell us that we are under investigation. That is wrong. If there is a problem, we could unlock it if the trust could just say, “We are trying to investigate this because we think we have to”.

I personally find it offensive that I am deemed to be a risk and a crook. I thought that in this country we were innocent until proven guilty. Actually, this is the other way around. Just because I happen to be a Member of the House of Lords, it is assumed that I am corrupt. This has caused a lot of problems for me and my family, but I am not going any further into detail. We have heard good stories from others, but I do not understand why we are PEPs. I have no access to government contracts and there is no reason to bribe me, sadly. I do not understand the logic behind that, and something should be done. The classification of PEPs should be looked at and revised because a lot of other people who are not PEPs are in places handling government contracts. As far as I know, they are not under permanent scrutiny, so I think you have got the wrong people and it is a nightmare.

Photo of Lord Naseby Lord Naseby Conservative

My Lords, the noble Lord, Lord Eatwell, mentioned the Crown dependencies. I want to ask my noble friend on the Front Bench about the position of the British Overseas Territories.

Photo of Baroness Chapman of Darlington Baroness Chapman of Darlington Shadow Minister for the Cabinet Office, Shadow Spokesperson (Business and Trade), Shadow Spokesperson (Treasury)

My Lords, I accept that we are politically exposed people—of course we are—and we can be bribed, so it is right that there are rules around this. This topic has attracted a lot of interest throughout the passage of the Bill, along with a number of questions and debates. I completely understand why that is.

While the enhanced checks faced by politically exposed persons are often onerous, as we have heard—all power to the elbow of the noble Viscount, Lord Trenchard; well done to him for finding the names of two actual human beings to speak to at American Express, and I hope he gets his situation resolved—it is vital that this country maintains strong anti-money laundering regulations and acts in a manner consistent with international standards. Unfortunately, to an extent that involves us, but I think the Government’s amendments in this group do what is needed in making the distinction, as do many other jurisdictions, between domestic PEPs and those from other countries, which is consistent with the Financial Action Task Force guidelines.

We welcome the support for the amendments from the noble Lord, Lord Forsyth, and my noble friend Lady Hayter of Kentish Town, both of whom have raised this issue consistently for some time. Most of all, though, it is right that we thank the Minister for bringing the amendments forward. She has worked hard to try to resolve colleagues’ concerns on this issue, and we hope that those will be dealt with by the upcoming changes to the regulations and the accompanying guidance.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

My Lords, I reiterate what the noble Baroness, Lady Chapman, has just said: our approach in this area has always been guided by ensuring that the rules in place in the UK maintain the international standards that are set in this area. That has been the guiding principle in looking at resolving this issue. Nevertheless, we felt that it was right that action be taken. Examples such as that from the noble Baroness, Lady Kramer, demonstrate clearly that the approach taken by institutions is not always proportionate, and we need to address that.

I have heard from noble Lords, including my noble friends Lord Forsyth and Lord Moylan, questions about the timescale for the two pieces of work that are committed to in the amendments. I understand that feeling, but we have engaged closely with the FCA on the review that it is committed to undertaking through the government amendment, and it is clear that if there is to be a thorough assessment of the treatment of domestic PEPs at a systemic level—we have already raised individual issues or individual institutions in response to previous debates—then it must be given adequate time to be conducted.

The 12-month timeframe will allow the review to benefit from fuller engagement with industry and with affected PEPs, and it will ensure that the FCA is able to develop a full understanding of the scale and extent of this issue. I think it gives the FCA time to address issues such as those raised by the noble Baroness, Lady Kramer. Included in that timeframe is the fact that, if it deems it necessary to update its guidance, it will produce the draft within that timeframe.

The Government have 12 months to amend the money laundering regulations. As I said, the distinction between domestic and foreign PEPs does not currently exist in law, and we want to make sure that we get the drafting right to ensure that it achieves the intended outcomes without unintended consequences. That will require us to consult with industry to ensure that the language in the amendment has the desired outcome of altering firms’ behaviour in how they treat low-risk domestic PEPs. These points relate to the questions posed by the noble Lord, Lord Sharkey, because this definition will come in part through the amendment of the regulations but in part from looking at the FCA’s guidance, and what needs to be set out more fully there when it has done its review.

Acknowledging the interest from parliamentarians—perhaps we should all have declared our interest as we stood up to speak, in respect of PEPs—we have committed to updates on progress both from the FCA and the Government in delivering on these amendments.

My noble friend Lord Moylan and the noble Earl, Lord Erroll, raised the interaction with tipping-off requirements and communication to customers. We have asked the FCA to consider this as part of its review. The noble Baroness, Lady Hayter, and others, mentioned the impact on family members. Again, we have asked the FCA to consider this in its review.

My noble friend Lord Moylan also asked if we need to wait for 12 months for action. The FCA remains committed to taking action where it identifies non-compliance with its current guidance on PEPs and will do so throughout the course of the review. I encourage noble Lords to use the contacts provided in my letter on this issue in November, if they encounter difficulties while the Government amendments are being implemented. I am sure that those in the FCA responsible for this area will look at this debate carefully.

The noble Lord, Lord Eatwell, raised a question on Crown dependencies, and my noble friend Lord Naseby asked about overseas territories. I will write to noble Lords on that. If it is right or appropriate that this should extend that far, there is nothing in the amendments to prevent the Government doing that, but I would want to double-check the right interaction and the right locus for addressing those concerns. With that, I beg to move.

Amendment 96 agreed.