Is a UK PEP still a PEP?

In the wake of these stories, the Government announced that it was reviewing how domestic PEPs should be treated under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. As of 10 January 2024, domestic Politically Exposed Persons (PEPs) have been given a lower starting risk status to foreign PEPs.

The rationale behind this change lies, aside from UK political objecting to being seen as inherently high risk, in the understanding that domestic PEPs operate in a relatively well-regulated political system. As a result, the inherent risk associated with them should, in theory, be lower than that of PEPs from foreign jurisdictions.

A quick review of what a PEP actually is

A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public function, either in the UK or abroad.

This includes heads of state, senior politicians, senior government officials, senior judicial or military officials, senior executives of state-owned corporations, and important political party officials. Family members and close associates are also considered PEPs due to their potential influence and access to funds.

Due to their power and influence, PEPs are more vulnerable to corruption. Which is why the Regulations have always demanded more scrutiny of them.

What’s changed?

Previously, a complete set of enhanced due diligence (EDD) measures were mandatory for all PEPs, regardless of their country of origin. Now, while EDD still needs to be used for domestic PEPs, regulated professionals are being asked to make the assumption they’re lower risk than their foreign counterparts - and to act accordingly.

To quote the Regulations:

…where a customer or potential customer is a domestic PEP, or a family member or a known close associate of a domestic PEP—

(a) the starting point for the assessment is that the customer or potential customer presents a lower level of risk than a non-domestic PEP, and
(b) if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP.”

This essentially allows businesses to apply a risk-based approach when assessing domestic PEPs, so resources can be focused on higher-risk areas.

It’s crucial to note that while the legislation provides a degree of relief for domestic PEPs, it doesn’t eliminate the need for EDD altogether.

What action do you need to take?

Update your AML PCPs

Your AML policies, controls and procedures (PCPs) are a good place to start. If they’re compliant, they’ll already include comprehensive guidance for identifying PEPs, the enhanced due diligence to undertake when employees encounter one and ongoing monitoring and reporting requirements of your business. So you just need to make a few small changes.

If you’re an AMLCC user, we incorporated the Regulation change into AMLCC when it was announced. So you can simply go to the PEP section of your AML policy and edit the update to align with your business’ situation and processes.

For those of you who have a policy outside of AMLCC, make sure you read the regulations thoroughly and understand what they ask of you. Then incorporate them into your AML PCPs appropriately.

Make sure your employees are aware of the change

If you’re updating an AMLCC AML policy, all users in your business will have to acknowledge they understand the PEP changes you make. The MLRO can see who’s done this and who hasn’t on their live dashboard.

Other businesses need to make sure that they inform their staff of the changes and raise awareness about the new PEP AML PCPs through training.

Updated or new risk assessments

AMLCC users will notice that the wording for AMLCC’s business and client risk assessments reflect the new regulations, when you next conduct a new risk assessment or update your existing ones.

All businesses regulated for AML need to conduct regular risk assessments to identify potential PEP exposure in your client base and the questions asked should reflect the Regulation’s new update.

About Richard Simms

Simms, Founder and Director of AMLCC, is a licensed insolvency practitioner, chartered accountant and a leading authority on anti-money laundering. He is a sought-after guest at accountancy and AML conferences worldwide due to his position at the pulse of changes in guidance and legislation that impact DNFBPs.

To see how AMLCC keeps your business fully AML compliant, visit amlcc.com