A politically exposed person or PEP is someone holding a prominent public position who is entrusted with prominent public functions either in the UK or elsewhere in the world.
The FCA first produced guidance in July 2017 for firms dealing with PEPs. Under the Financial Services and Markets Act 2023, it needed to review the way that firms are applying its guidance and consider whether it required any changes. The FCA completed a review and consulted on proposed changes. Generally, it found that its guidance remains appropriate. However, it identified several areas where it has amended its guidance due to legislative changes or to make it clearer to help firms comply.
It has now updated its guidance to reflect changes to the legislative framework in the UK since 2017.
In the updated guidance, it:
- Clarifies that firms should not treat non-executive Board members of civil service departments in the UK as PEPs.
- Reflects changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR) .
- Updates sign off for PEP business relationships.
The FCA expects firms to take appropriate but proportionate measures in meeting their financial crime obligations. The MLR set out that all firms must apply a risk-sensitive approach to identifying PEPs and then applying enhanced due diligence measures. The MLR and guidance clarify that a case-by-case basis is required for the risk assessment of individual PEPs rather than applying a generic approach to all PEPs.
The guidance clarifies how firms should apply the definitions of a PEP in the MLR in a UK context. This includes that firms should only treat those in the UK who hold truly prominent positions as PEPs and not apply the definition to local government, more junior members of the senior civil service or anyone other than the most senior military officials. This means that, in practice, it is unlikely that many UK customers should be treated as PEPs.
Even where a UK customer meets the PEP definition due to the position they hold, the guidance and MLR require a firm to recognise these customers' lower risk. In these cases, firms should apply guidance on measures they can take in lower-risk situations to meet their obligations. The guidance also provides that lower levels of due diligence will be acceptable for PEPs who are from another country which they assess as having similarly transparent anti-corruption regimes.
However, the guidance does require firms to apply more stringent approaches where they assess the customer as having a greater risk. In those circumstances, firms will need to take further steps to verify information about the customer and the proposed business relationship. This is in line with the FCA's financial crime guidance to date, where the focus has been on managing higher-risk PEP relationships.
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