Politically Exposed Person | PEP FAQs

What is a Politically Exposed Person and who should be treated as a PEP?

A Politically Exposed Person (PEP) is defined as an individual 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 – similar legislative bodies

It includes regional governments in federalised systems and devolved administrations, including the Scottish Executive and Welsh Assembly, where such bodies have some form of executive decision-making powers. It does not include local government in the UK but it may, where higher risks are assessed, be appropriate to do so in other countries.

• Members of the governing bodies of political parties – the FCA considers that this only applies to political parties who have some representation in a national or supranational Parliament or similar legislative body as defined above. The extent of who should be considered a member of a governing body of a political party will vary according to the constitution of the parties, but will generally only apply to the national governing bodies where a member has significant executive power (eg over the selection of candidates or distribution of significant party funds).
• 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. In the UK this means only judges of the Supreme Court. Firms should not treat any other member of the judiciary as a PEP and only apply EDD measures where they have assessed additional risks.
• Members of courts of auditors or of the boards of central banks ambassadors, charges d’affaires and high-ranking officers in the armed forces.

The FCA considers that this is only necessary where those holding these offices on behalf of the UK government are at Permanent Secretary/Deputy Permanent Secretary level, or hold the equivalent military rank (eg Vice Admiral, Lieutenant General, Air Marshal or senior).

• Members of the administrative, management or supervisory bodies of State-owned enterprises.

FCA considers that this only applies to for profit enterprises where the state has ownership of greater than 50% or where information reasonably available points to the state having control over the activities of such enterprises directors, deputy directors and members of the board or equivalent function of an international organisation.

Only includes international public organisations such as the UN and NATO. The Government made clear in their consultation of 15 March 2017 that they do not intend this definition to extend to international sporting federations. The regulations exclude from the definition of a PEP those who are ‘junior or mid- ranking’.

It will normally only be necessary to meet the obligations to undertake customer due diligence. However, a firm should be alive to the potential that middle ranking and more junior officials could act on behalf of a PEP when assessing the overall risks a customer might present; where it assesses there might be a risk, a firm should consider what additional measures it needs to take.

This includes any transaction or business relationship established in a high-risk third country.

Why is screening for 'PEP' important?

Screening for PEP is mandatory. The regulations require firms to have in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer is a PEP (or a family member or a known close associate of a PEP). It has to manage the risks arising from the firm’s relationship with those customers. There are many legitimate reasons for doing so (e.g., a solicitor acting in a property transaction).

In these situations, and in line with FATF guidance, we expect firms to understand as part of their due diligence why a PEP, family member or close associate is using such an arrangement and use that as part of their assessment of risk.

What is a PEP Check?

A PEP Check is a screen of a name against a database. This is how to find out whether the person is a PEP or not.

What is a PEP list?

A Politically Expose Person (PEP) list is a database of politically exposed persons and entities built from rigorous investigative and research processes. The list can include personally identifiable information such as date of birth, gender, aliases or nicknames, titles, roles, and nationality and passport number. They also examine relationships and close associates to the PEP, which can include business partners, family members and related companies.

PEP Lists are constantly evolving and updating on a daily basis, which means many organisations need to carry out Ongoing PEP checks to stay up to date.

Is there a single Pep List?

No. The FCA for example, expects firms to make use of information that is reasonably available to them in identifying PEPs, family members or known close associates.

This could include the following:

• Public domain information such as websites of parliaments and governments, reliable news sources and work by reputable pressure groups focused on corruption risk such as Transparency International or Global Witness.
• Reliable Public Registers – in the UK this includes companies house’s register of companies and persons of significant control (PSC) and those maintained by the Electoral Commission.
• In line with the nature and size of the firm, it may choose, but is not required, to use commercial databases that contain lists of PEPs, family members and known close associates. A firm choosing to use such lists would need to understand how such databases are populated and will need to ensure that those flagged by the system fall within the definition of a PEP, family member or close associate as set out in the regulations and this guidance.

What is a close associate of a PEP and why is the screening important?

People who are ‘known to be close associates’ of a PEP is defined as including:

• An individual known to have joint beneficial ownership of a legal entity or a legal arrangement or any other close business relationship with a politically exposed person.
• An individual who has sole beneficial ownership of a legal entity or a legal arrangement that is known to have been set up for the benefit of a PEP.

A PEP’s family or close associates may also benefit from, or be used to facilitate, abuse of public funds by the PEP. It is as a result of this connection that family and known close associates are required to be subject to greater scrutiny.

I have identified a customer as a PEP, what do I do now?

Where a firm has identified that a customer (or beneficial owner of a customer) does meet the definition of a PEP (or a family member or known close associate of a PEP), a firm must

• assess the level of risk associated with that customer and, as a result of that assessment,
• the extent to which enhanced due diligence measures need to be carried out.

A firm’s assessment and its decision to apply relevant enhanced due diligence measures need to be clearly documented.

Example

The FCA expects that a firm will not decline or close a business relationship with a person merely because that person meets the definition of a PEP (or of a family member or known close associate of a PEP). A firm may, after collecting appropriate information and completing its assessment, conclude the risks posed by a customer are higher than they can effectively mitigate. Only in such cases will it be appropriate to decline or close that relationship.

Beneficial owners of legal entities who are PEPs

Firms should identify when a Politically Exposed Person is a beneficial owner of a customer. It does not require that a legal entity should be treated as a PEP just because a PEP might be a beneficial owner. Once a firm is satisfied that a PEP is a beneficial owner then, in line with the risk-based approach, they should assess the risks posed by the involvement of that PEP and, after making this assessment, firms should apply appropriate measures in accordance with this guidance.

These could range from applying customer due diligence measures in cases where the PEP is just a figurehead for an organisation through to applying EDD measures, according to the risk assessed in line with this guidance where it is apparent the PEP has significant control or the ability to use their own funds in relation to the entity.

Once a PEP always a PEP?

How long is a Politically Exposed Person status lasting after the termination of the official activity? If a person who is a PEP is no longer entrusted with a prominent public function, that person should continue to be subject to risk-based enhanced due diligence for a period of at least 12 months after the date they ceased to be entrusted with that public function. Firms may apply measures for a longer period to address risks of money laundering or terrorist financing in relation to that person, but the FCA consider this will only be necessary in the cases of PEPs where a firm has assessed that PEP as posing a higher risk.

Do PEPs pose the same risk?

The answer is simple: No !

The risk of such corruption will differ between PEPs. We expect firms to take a differentiated approach that considers the risks an individual PEP poses based on an assessment of:

• The prominent public functions the PEP holds
• The nature of the proposed business relationship
• The potential for the product to be misused for the purposes of corruption
• Any other relevant factors the firm has considered in its risk assessment

How CheckAML can help you?

With CheckAML you can perform instant AML Checks on people in terms of PEP status in seconds. Ongoing Monitoring as Part of EDD is supported via CheckAML so are instant Updates on changes.