PEPs, Mortgages, and Modernisation

Unknown Speaker

Hello and welcome back to the B-Compliant Podcast! I’m Vicky Pearce, and as always, I’m joined by the ever-enthusiastic Rachel MacRae. Rach, how are you doing today?

Rachel MacRae

Oh, I’m great, Vicky! I’ve got my coffee, I’ve got my notes, and I’m ready to dive into some regulatory updates. I know, I know, not everyone’s idea of a good time, but you know me—I love a bit of compliance chat!

Unknown Speaker

You do, and that’s why we get on so well! So, let’s kick off with the FCA’s latest guidance on PEPs—Politically Exposed Persons. The FCA’s just finalised FG25/3, and there’s quite a bit to unpack, especially around proportionality and how we treat UK-based PEPs, their families, and associates.

Rachel MacRae

Yeah, and I think the big headline is that UK PEPs and their close family or known associates should now be considered lower risk by default, unless there’s something else going on. That’s a shift, isn’t it? It’s all about not just slapping the same label on everyone, but actually looking at the individual circumstances.

Unknown Speaker

Exactly. The FCA’s really pushing for a case-by-case approach, rather than a blanket policy. And they’ve clarified that non-executive board members of UK civil service departments shouldn’t be treated as PEPs anymore. Plus, they’ve expanded the list of domestic public bodies—so now the Northern Ireland Assembly is in there alongside the Scottish Parliament and Senedd Cymru. I always have to double-check that list, it keeps growing!

Rachel MacRae

It does! And I think it’s good they’re giving more flexibility around who can approve PEP relationships. It doesn’t always have to be the MLRO now, as long as it’s someone suitably senior. That should help, especially in bigger firms.

Unknown Speaker

Definitely. And on the topic of declassifying PEPs, the guidance is clear: after 12 months out of public office, the PEP status should be removed unless there’s a good reason to keep it. But—and this is important—family members and associates should go back to standard due diligence as soon as the PEP status drops off, unless there’s another risk factor. I actually had a client recently who was struggling with this. They’d kept a client’s family under enhanced due diligence for ages after the main PEP had left office, just out of habit. We had to step in and remind them to reassess the risk and update their records. It’s easy to let these things drag on, but it’s so important to keep things proportionate and timely.

Rachel MacRae

That’s a great example, Vicky. And it’s a reminder that firms need to keep their AML policies up to date and make sure staff are trained on these changes. The FCA’s also encouraging firms to monitor trigger events—like elections—and to invite customers to let them know if their status changes. It’s all about staying on top of things, isn’t it?

Unknown Speaker

Absolutely. And just to round off, the FCA’s made it clear that having a PEP as a beneficial owner doesn’t automatically make the whole entity high risk. It’s about whether they actually have significant control. So, document your risk assessments and keep everything proportionate. Right, Rachel, shall we move on to mortgages?

Rachel MacRae

Let’s do it! So, the FCA’s confirmed the 15% cap on high loan-to-income mortgages—those over 4.5 times income. This comes into effect from July 2025, and it’s all about keeping the market stable and avoiding excessive credit growth. Lenders can’t have more than 15% of new mortgages in this high LTI bracket over any rolling four-quarter period. But, and this is important, it only applies to lenders, not brokers.

Unknown Speaker

Yeah, so if you’re a mortgage broker listening, you’re not directly affected by the cap, but you do need to be aware of it. Lender policies and product availability might change as a result, so it could impact what you can offer your clients. And, as always, brokers still need to stick to MCOB and the Consumer Duty—so, affordability and suitability checks are still front and centre.

Rachel MacRae

Exactly. And the FCA’s also raising the de minimis threshold to £150 million in mortgage lending over two consecutive four-quarter periods, up from £100 million. So, smaller lenders might not be caught by the cap, but the bigger players definitely will. And just to clarify, things like lifetime mortgages and re-mortgages with no change in the principal are excluded from this cap.

Unknown Speaker

That’s right. And while we’re on the topic of modernisation, the FCA’s also looking at client categorisation rules. They want to make it easier for high-net-worth individuals to access investment opportunities and to clarify what protections different client types get. It’s part of a bigger push to support innovation and growth in the UK’s capital markets. I think we touched on this in a previous episode, didn’t we, Rachel? About the FCA wanting to balance risk and encourage competitiveness?

Rachel MacRae

We did! It’s all about making the rules fit for purpose in a changing market. And while these changes won’t directly affect mortgage brokers, it’s good for everyone in the industry to keep an eye on them. You never know when a tweak to client categorisation might ripple out and affect your day-to-day work.

Unknown Speaker

Exactly. It’s all connected, isn’t it? Right, let’s get into the world of financial crime and enforcement—there’s been a lot happening there lately.

Rachel MacRae

Oh, there really has! The FCA’s been busy, and the Monzo Bank case is a big one. They got hit with an £21 million pound fine for serious anti-money laundering failings. Their customer base exploded from 600,000 to over 5.8 million between 2018 and 2022, but their systems just didn’t keep up. The FCA found gaps in onboarding, risk assessment, and transaction monitoring. And, get this, they even onboarded people using addresses like famous landmarks. I mean, you can’t make it up!

Unknown Speaker

It’s a bit shocking, isn’t it? And it’s not just Monzo—this is the tenth enforcement case for financial crime failings against banks in the last four years. The FCA’s really making it clear that financial crime prevention is a top priority. And they’re not just relying on old-school methods, they’re using data and technology to take down dodgy websites and apps—over 1,600 websites and more than 50 apps in the last year alone. That’s a huge increase from just a couple of years ago.

Rachel MacRae

Yeah, and they’ve also cracked down on non-compliant financial promotions—nearly 20,000 were amended or withdrawn in 2024, compared to fewer than 600 in 2021. That’s massive. Plus, they’re working with tech platforms to protect people from unauthorised ‘finfluencers’ and illegal investment schemes. I actually had a case recently where a compliance team I was working with spotted an unauthorised investment platform being promoted to their clients. They acted really quickly—flagged it, got the comms out, and prevented any client exposure. It just shows how important it is to have those monitoring systems in place and to act fast when something looks off.

Unknown Speaker

Absolutely. And it’s a reminder that technology is a double-edged sword—it can be used for harm, but it’s also a powerful tool for prevention if you use it right. The FCA’s annual report really highlights how much they’re leaning into data and tech to spot problems earlier and on a bigger scale. It’s a trend we’ve seen building over the last few years, and I don’t think it’s slowing down any time soon.

Rachel MacRae

No, definitely not. And for compliance teams, it means staying alert, keeping systems up to date, and making sure everyone knows what to look out for. It’s a lot, but it’s the world we’re in now.

Unknown Speaker

It is. Well, that’s all we’ve got time for today. Thanks for joining us as we unpacked PEPs, mortgages, and the ever-evolving fight against financial crime. Rachel, always a pleasure chatting with you.

Rachel MacRae

You too, Vicky! And thanks to everyone for listening. We’ll be back soon with more updates and insights—so stay tuned, and don’t forget to keep compliance at the top of your list. Bye for now!

Unknown Speaker

Bye, everyone!