New legal update on handling PEPs: Navigating enhanced due diligence and risk assessment in 2024
AML Services Manager
Changes to the law regarding politically exposed persons (PEPs) come into force today, 10th January 2024.
10th January 2024
The Law affected, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) will be amended by The Money Laundering and Terrorist Financing (Amendment) Regulations 2023.
What does this mean?
In reality, it’s a minor change that specifically outlines you should always be considering a risk-based approach to your due diligence processes.
The starting point for regulated firms when considering the treatment of domestic PEPs should be to treat them as inherently lower-risk than non-domestic PEPs. Noting that there should be a lower level of enhanced due diligence to domestic PEPs compared to non-domestic PEPs (unless other risk factors are present).
The changes don’t mean no enhanced due diligence is required, but just that the nature and extent should be appropriate to the risk.
When a PEP is identified but considered low risk you may undertake the following steps:
Seek to make no enquiries of a PEP’s family or known close associates except those necessary to establish whether such a relationship does exist.
Take less intrusive and less exhaustive steps to establish the source of wealth and source of funds only using information already available and not make further inquiries of the individual unless anomalies arise.
Less senior-level approval.
Less frequent monitoring.
How can technology support your risk assessment of PEPs?
A starting point for an individual PEP analysis is jurisdiction. Where there is a possible PEP match for your client then you should provide information firstly on jurisdiction.
Screening then looks to categorise PEPs into four classes according to the scope of their influence:
A screening solution should then provide categorisation of specific risk Levels ranking roles based on the FATF categorisations of PEP CLASS 1 -4. PEP class 1 being the most significant such as Heads of state, Members of the national executive and Members of the national legislatures.
Ultimately it is crucial to remember why PEPs are considered high-risk.
PEPs may be in a position to abuse their position for private gain and a PEP may use the financial system to launder the proceeds of this abuse of office. Likewise, a PEP’s family or close associates may also benefit from, or be used to facilitate, the abuse of public funds. Financial Action Task Force (FATF) confirms that ‘these requirements are preventive (not criminal) in nature, and should not be interpreted as stigmatising PEPs as such being involved in criminal activity’.
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