What you need to know
The UK’s Financial Conduct Authority (“FCA”) recently published the final version of guidance on how financial services firms should treat politically exposed customers in order to meet AML obligations. The guidance applies to all firms whose AML controls are overseen by the FCA, and draws on several months of consultation with a wide range of stakeholders, including firms, consumers, legal professionals, government, and anti-corruption campaigners. It’s structured as an easy-to-follow Q&A, and covers issues from the definition of a PEP, to why PEPs pose a financial crime risk, to the measures firms can take in response to different levels of risk.
2017 Money Laundering regulations
The guidance will help clarify a number of changes in policy introduced by the 2017 Money Laundering regulations, which came into force in late June.
One key issue is that the new rules (“MLR2017”) expand elements of the old regulations that previously only applied to foreign PEPs to include local ones too. But the FCA guidance explains that only the most prominent UK politicians should be classed as politically exposed at all—local government representatives, and all but the most senior military and civil service officials, do not credit PEP status. This means that in practice, UK PEPs will be a fairly rare species. In addition, the guidance notes that any UK PEPs that firms do encounter, and their family or known close associates, should be treated as lower risk unless there are circumstances or specific points of evidence to suggest otherwise.
In addition, MLR2017 expands the requirement that firms adopt a risk-based approach to financial crime. Firms are obligated to apply a risk-based approach to identifying politically exposed customers—this hasn’t changed—but must now work on a case-by-case basis. A one-size-fits-all approach is not considered sufficient: it is no longer acceptable, for example, for firms to default to simplified due diligence; they should apply enhanced due diligence where appropriate and, if needed, put ongoing monitoring or restrictions in place.
The guidance
The FCA guidance is available here. Details of the consultation and responses on which the guidance is based can be found here.
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