Banking Compliance for PEPs and HNW Individuals: Navigating Enhanced Due Diligence

In recent years, a significant number of high-profile individuals — including politicians, public officials, business executives with government contracts, and their family members — have found themselves unable to open or maintain bank accounts. The phrase "de-banking" has entered mainstream discourse following high-profile cases and the FCA's investigation into bank treatment of Politically Exposed Persons.

For HNW individuals who hold or have held public roles, or who are family members or close associates of those who do, understanding the compliance landscape — and knowing your rights — has become essential.

What Is a Politically Exposed Person?

A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public function, either domestically or internationally. The definition under UK anti-money laundering regulations (as transposed from the Fourth and Fifth Money Laundering Directives and codified in the Money Laundering Regulations 2017) covers:

Domestic PEPs (as of 2020 when UK added domestic PEPs):

• Members of Parliament, members of the devolved administrations (Holyrood, Senedd, Stormont)
• Senior government officials and civil servants above a defined grade
• Senior members of the judiciary
• Senior officers of the armed forces
• Directors and board members of state-owned enterprises
• Ambassadors and high commissioners
• Senior officials of major political parties

Foreign PEPs:

• Heads of state and government ministers of any country
• Senior politicians, judges, military officers, and state enterprise executives in foreign jurisdictions

Associated persons:

• Immediate family members (spouse, civil partner, children, parents)
• Close associates (business partners with joint beneficial ownership, individuals known to be connected to PEPs through business or personal relationships)

PEP status is not a permanent designation — it typically applies during the period of public office and for a "cooling off" period afterwards. UK guidance suggests that a domestic PEP who has left office for over 12 months and whose past position no longer poses meaningful risk should be treated with the same level of due diligence as any other client, not as a current PEP. In practice, many banks continue to apply PEP-level scrutiny for longer than regulations strictly require.

Enhanced Due Diligence: What Banks Are Required to Do

When a bank identifies a customer as a PEP (or close associate), it is required to apply Enhanced Due Diligence (EDD) rather than standard Customer Due Diligence. EDD requirements under the JMLSG (Joint Money Laundering Steering Group) guidance — the industry standard for UK AML compliance — include:

Senior management approval: The decision to open or maintain a relationship with a PEP must be approved by senior management (typically the Money Laundering Reporting Officer or equivalent), not just a standard account manager.

Source of wealth and source of funds: The bank must establish the origin of the PEP's wealth to a higher standard of proof than for standard customers. This typically requires:

• Explanation of the career history and how wealth accumulated
• Supporting documentation: audited accounts for businesses owned, salary records, property sale records, evidence of inheritance with supporting probate documents
• For political or public officials: verification that wealth is consistent with legitimate public service income and any disclosed business interests

Ongoing monitoring: PEP accounts are subject to more intensive transaction monitoring. Large or unusual payments will generate queries more readily than for standard accounts.

Annual or periodic review: Rather than the standard three-year review cycle, PEP relationships are typically reviewed annually to confirm that the risk profile remains appropriate and that no adverse information has emerged.

These requirements impose real cost and administrative burden on banks, which has contributed to some institutions taking the path of least resistance and simply declining PEP relationships altogether.

The De-Banking Controversy and FCA Review

In 2023, the FCA conducted a review of how UK banks were applying PEP guidance following widely publicised cases of accounts being closed or refused. The review found that some banks were applying a blanket policy of refusing all PEPs regardless of individual risk assessment — an approach that is both disproportionate and inconsistent with the regulations, which require risk-based assessment, not categorical exclusion.

The FCA's key findings included:

• Banks were using PEP status as a reason to refuse service without adequate individual risk assessment
• Some banks had applied PEP rules to close associates and family members far beyond any reasonable definition
• The communications from banks to affected customers were inadequate — failing to explain decisions or provide meaningful opportunity to respond

Following the review, the FCA issued strengthened guidance making clear that:

• Domestic PEPs (UK public officials) should generally present a lower money laundering risk than foreign PEPs and should be treated accordingly
• Family members of PEPs should not be treated as high-risk solely on the basis of their family connection, absent specific risk factors
• Banks must conduct genuine individual risk assessments, not apply blanket policies

The government also amended the Money Laundering Regulations to emphasise proportionate treatment of domestic PEPs in particular.

Source of Wealth Documentation: What You Need

If you are a PEP or associated person opening or maintaining a private banking relationship, the most proactive approach is to prepare a comprehensive source of wealth file before it is requested. Banks are more receptive to relationships where documentation is clear and readily available than where they have to chase for information.

A complete source of wealth package typically includes:

Career history and income: CV covering all roles from early career, with particular emphasis on income-generating positions. P60s or equivalent earnings records where available. Payslips for any currently employed roles.

Business interests: For any businesses owned, certificates of incorporation and shareholding, audited accounts for the past three to five years, evidence of dividends received, or sale proceeds if the business has been sold.

Property: Land Registry entries or equivalent title documents for properties owned. Completion statements for significant purchases and sales.

Investments: Portfolio statements from investment managers, pension statements, evidence of long-term investment history.

Inheritance or gifts: Grant of probate, will extracts, solicitor confirmation letters for any inherited wealth.

Other significant receipts: Settlement agreements, insurance proceeds, litigation awards — with supporting documentation.

The goal is to demonstrate a coherent financial biography that explains, with documentary evidence, how the current wealth position was accumulated. Unexplained wealth — a large balance without a clear documented source — is the primary trigger for refusal or closure.

Your Appeal Rights if an Account Is Closed

Banks are not required to provide a specific reason for closing an account or refusing an application — they cite the need to protect confidentiality around their suspicion reporting obligations under the Proceeds of Crime Act. However, they must:

• Give reasonable notice before closing an account (typically 30–60 days)
• Act in compliance with their own published policies
• Not discriminate in ways that breach the Equality Act

If your account is closed or refused, the process for challenging it is:

1. Request a formal explanation from the bank's compliance team, specifically citing your rights under the FCA's consumer duty and JMLSG guidance.
2. Make a formal complaint through the bank's internal complaints process.
3. Escalate to the Financial Ombudsman Service if the complaint is not resolved satisfactorily within 8 weeks.
4. Seek legal advice if there are grounds to believe the refusal is discriminatory or based on materially incorrect information.

The FCA's improved guidance post-2023 has made the Ombudsman more receptive to complaints about disproportionate de-banking, particularly for domestic UK PEPs.

Alternative Banking Solutions for Clients Who Have Faced Refusals

If a major bank has refused or closed your account, smaller institutions and specialist providers are often more willing to engage with PEP clients, provided the source of wealth is documentable:

Private banks with specialist PEP experience: Several private banks — including some smaller UK private banks and Crown Dependency (Isle of Man, Jersey, Guernsey) institutions — have developed dedicated PEP compliance teams and are experienced in managing these relationships appropriately.

International private banks: Swiss, UAE, and Singapore-based private banks with UK operations are accustomed to serving international clientele including PEPs and are generally more sophisticated in their risk assessment than high street UK retail banks.

Smaller UK retail banks and building societies: Regional building societies and smaller clearing banks may have less rigid categorical policies than major institutions, particularly for lower-risk domestic PEPs.

Correspondent banking services: For non-UK PEPs who need access to UK banking, some intermediary services can facilitate access through properly structured correspondent arrangements.

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This guide is for general information only and does not constitute legal, financial, or regulatory advice. AML regulations, JMLSG guidance, and FCA rules are subject to change. Individual circumstances vary significantly — seek independent legal and financial advice if you are experiencing banking difficulties related to PEP status. Any information provided to banks should be accurate and complete.

How Global Investments Can Help

Global Investments has extensive experience working with HNW clients — including domestic and international PEPs and their family members — on banking and wealth management. We understand the compliance landscape and can assist clients in preparing source of wealth documentation, identifying appropriate banking providers, and navigating the relationship management aspects of private banking for complex client profiles.

We do not assist with structuring that is designed to obscure the source of wealth — compliance with AML obligations is non-negotiable. Our value is in helping clients who have entirely legitimate wealth backgrounds present their position clearly and compliantly to banking institutions that require a high standard of documentation. Contact our team to discuss your situation in confidence.