Although there is no global definition of a politically exposed
person, the majority of global financial institutions and the
countries in which they're headquartered base their definition
on the guidance issued by the Financial Action Task Force on Money
Laundering (FATF). This definition was implemented in the UK
through the Money Laundering Regulations 2007.
Broadly speaking it defines a politically exposed person as an
individual who in the previous year "has held a
prominent public position". The definition was widened further
by the Fourth Money Laundering Directive 2015 to incorporate, among
others, domestic politically exposed persons as well as directors,
deputy directors and board members of international organisations.
Furthermore, the enhanced scrutiny referred to in Articles 20
and 21 of the Directive also apply to close family members of a
politically exposed person, including parents, spouses, children
and partners, as well as close associates which may include fellow
directors and business partners.
The directive places an obligation on lenders and financial
institutions to "take adequate measures to establish the
source of wealth and source of funds which are involved in the
proposed business relationship" and "conduct enhanced
ongoing monitoring of the relationship" but gives no guidance
on what these measures should entail. It is up to the financial
institution to further categorise the risk that a politically
exposed person may represent, and the nature and extent of the
enhanced due diligence and ongoing monitoring that it
Section 30 of the Bank of England and Financial Services Act
2016, enacted in May 2016, is specifically concerned with the
enhanced due diligence requirements necessary when providing
services to customers who are defined as a politically exposed
person. Its aim is to balance the additional burden placed on
politically exposed persons by the Fourth Money Laundering
Directive and provides for a complaints process through the
Financial Conduct Authority (FCA); which is regulated by the
Secretary of State for Business, Innovation and Skills (BIS). The
complaints will concern the way in which regulated firms have
interpreted their obligations under the regime; specifically, have
they treated an individual like a politically exposed person when
they are not, or if they are a politically exposed person, have
they been treated unreasonably?
The Act requires the FCA to issue guidance on the above, which
means it is too early at this stage to determine the long standing
impact it will on upon a politically exposed person. The
expectation is though, that these guidelines will help to
differentiate between the risk posed by categories of politically
exposed persons while also providing clarity surrounding the
proportionality of due diligence required to reflect the risk they
It is understood that this guidance is currently under
advisement and is due to be published later this year (2016). But
when coupled with a wider lack of transparency in the commercial
decision making processes adopted by financial institutions, it is
clear that current scrutiny of politically exposed persons, their
families and close associates is here to stay.
three-part series on politically exposed persons aims to
provide further clarity on this often misunderstood status, while
also providing insight on the steps a politically exposed person
can take to create a sustainable long-term reputation strategy; to
ensure that such status needn't be a hindrance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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With a view to promote corporate transparency and prevent misuse of corporate vehicles for illicit purposes such as corruption, tax evasion, money laundering, the Financial Action Task Force ("FATF")...
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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