Effective as of January 10th, the Money Laundering Regulations (2023) have been amended amid a review initiated by the FCA regarding the treatment of domestic politically exposed persons. Prompted by the Coutts incident, this review will investigate the proportionality of controls applied to domestic politically exposed persons.
The starting point for domestic politically exposed person (PEP) risk assessments is that the customer or potential customer presents a lower level of risk than a non-domestic PEP.
If no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that PEP customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP.
What do you need to do?
- Update your customer risk assessments (CRAs) to reflect that there is no ‘one size fits all’ approach to categorising PEPs. If a PEP is categorised as high-risk, it should be because of the balanced output of the CRA and not solely determined by the customer’s PEP status. This may involve reviewing the risk variables feeding into the CRA and the thresholds applied.
- Review CDD/EDD policies and procedures to ensure that the high-level approach and procedural guidance applied to PEPs reflects their nuanced risk profile on a client-by-client basis.
- Confirm that business-wide risk assessments demonstrate an awareness that the risks of domestic PEPs are different to their non-domestic counterparts and controls should be proportionate to the degree of risk presented on an individual basis.
We can help
Our team has extensive experience supporting financially regulated firms in PEP advisory work.
We ensure that business-wide risk assessments, policies and procedures, and customer risk assessments are aligned to industry best practice. We help firms to strike a balance between achieving an effective, yet proportionate, approach to managing PEP customers.
