The FCA has published Finalised Guidance 17/5: the treatment of politically exposed persons for anti-money laundering purposes (FG17/5). The guidance in FG17/5 is aimed at any institution that has its anti-money laundering (AML) systems and controls overseen by the FCA.
The purpose of FG17/5 is to provide guidance to financial services firms as to how they should treat customers who are politically exposed persons (PEPs) when meeting their AML obligations.
In summary, FG17/5 notes that:
- the FCA expects that firms take appropriate but proportionate measures in meeting their financial crime obligations;
- firms must apply a risk sensitive approach to identifying PEPs and then applying enhanced due diligence measures; and
- a case by case basis is required with the risk assessed of individual PEPs rather than applying a generic approach to all PEPs.
FG17/5 provides clarity on how firms should apply the definitions of a PEP in a UK context. This includes providing that firms should only treat those in the UK who hold truly prominent positions as PEPs and not to apply the definition to local government, more junior members of the senior civil service or anyone other than the most senior military officials. As such it is unlikely in practice that a large number of UK customers should be treated as PEPs.
FG17/5 also states that:
- even where a UK customer does meet the definition of PEP because of the position they hold – or another country assessed as having similarly transparent anti-corruption regimes – a firm is required to recognise the lower risk of such customers and apply the guidance on measures they can take in lower risk situations to meet their enhanced due diligence obligations; and
- the guidance does, however, require firms to apply more stringent approaches where the customer is assessed as having a greater risk. In those circumstances firms will need to take further steps to verify information about the customer and the proposed business relationship. This is in line with the FCA’s financial crime guidance where the focus has been on managing higher risk PEP relationships.