On 06 July 2017, the FCA has published a finalised guidance (FG 17/5) for how financial services firms should treat customers who are politically exposed persons (PEPs) when meeting their anti-money laundering (AML) obligations. This guidance is aimed at all financial institutions that have their AML systems and controls overseen by the FCA and clarifies how firms can meet their obligations when initiating new business relationships and monitoring existing ones.
- In line with current legislation, a case-by-case approach is required with risk assessed on an individual PEPs basis rather than applying a generic approach to all PEPs;
- Firms should apply the Money Laundering Regulation 2017 definition of a PEP only to those in the UK who hold truly prominent positions rather than to local governments, more junior members of the civil service or to anyone other than the most senior military officials. This should result in a small number of UK customers treated as PEPs;
- Even when a UK customer falls under the definition of a PEP, firms are required to recognise the lower risks posed by UK customers (or customers from another country assessed as having similarly transparent anti-corruption regimes) and apply the measures that can be taken in lower risk situations; and
- Firms must apply more stringent approaches and take further steps where the PEP is assessed as having a greater risk. In those circumstances firms will need to take further steps to verify information about the PEP and the proposed business relationship.
The FCA’s guidance makes it clear that the FCA expects firms to take a differentiated approach that considers the risks an individual PEP poses based on an assessment of factors like the prominence of the public function and the relevant jurisdiction; the nature of the proposed business relationship; the potential for the product to be misused for the purposes of corruption; and any other relevant factors the firm has considered in its risk assessment.