FCA publishes guidance on PEPs

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The Financial Conduct Authority (FCA) has published guidance on politically exposed persons (PEPs) after the introduction of new anti money laundering regulations.

We recently covered the UK’s new AML Regulations (the 2017 Regulations) that came into force last June and which implement the proposals contained within the EU’s 4th Money Laundering Directive. The main change brought by the new regulation is that now all customer due diligence is required to be on a risk-sensitive basis. Just a month after the new regulations were put in place, the FCA published guidance on how firms should handle transactions involving PEPs in an attempt to combat money laundering.

Risk-sensitive basis

PEPs are individuals who are entrusted with prominent public functions, including:

  • heads of state, heads of government, ministers and deputy or assistant ministers;
  • members of parliament or of similar legislative bodies;
  • members of the governing bodies of political parties;
  • members of supreme courts, of constitutional courts or of any judicial body the decisions of which are not subject to further appeal except in exceptional circumstances;
  • members of courts of auditors or of the boards of central banks;
  • ambassadors, charges d’affaires and high-ranking officers in the armed forces;
  • members of the administrative, management or supervisory bodies of State-owned enterprises;
  • directors, deputy directors and members of the board or equivalent function of an international organisation.

The definition does not include middle-ranking or junior officials.

At the centre of the new risk-based approach is the importance of ensuring due diligence for customers is as effective and thorough as possible, with the level of risk ascertained on a case-by-case basis. For the highest risk scenarios, the regulations dictate that enhanced customer due diligence must be carried out.

Domestic PEPs

One of the more significant changes to the MLR 2017 is that it won’t just be overseas PEPs that must be called into consideration; it will also apply to PEPs from the UK. The FCA provides guidance on who should be treated as a PEP in the UK and gives instruction on who should be considered a close “associate” or family member.

Additionally, the guidance provides clarity on what some indications may be of the level of PEP risk and what measures firms should be taking when they have identified both low or high risk situations.

Appropriate measures

Above all, the FCA has made it clear that firms must ensure they are applying a risk sensitive approach to establishing whether any of their customers would qualify as PEPs. Whilst it is unlikely that many UK customers will need to be treated as such in practice, the FCA’s guidance states that they expect firms to “take appropriate but proportionate measures in meeting their financial crime obligations”. It is therefore important for firms to be sure they have the correct systems and measures in place.

If you would like to know more about your obligations concerning AML or our experience of assisting the corporate sector with AML/Compliance e-verification, get in touch with us.