FCA Guidance on PEPs - Finalised Guidance Summary

The definition of a PEP remains aligned with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), but the FCA provides clarification that not all individuals in public roles should be treated the same. The guidance reinforces the need for firms to use discretion in assessing the risk of PEPs, especially distinguishing domestic PEPs from higher-risk foreign PEPs.

The FCA confirms that senior management approval is still required for PEP relationships but clarifies that 'senior' should mean individuals with sufficient knowledge of the customer and authority to make decisions, not necessarily C-suite level.

The guidance incorporates amendments from the 2023 Regulations, including clearer requirements around risk assessments, documentation, and the review of PEP status. Domestic PEPs are now presumed to present a lower risk unless evidence suggests otherwise.

The FCA has added examples of good and poor practices, including case studies for how firms should apply risk-based approaches. The guidance also emphasises the importance of reviewing customer classifications and risk assessments periodically.

The FCA aims to reinforce a risk-based approach, reduce over-application of EDD to low-risk individuals, and ensure that compliance burdens are proportionate. The new approach is also an effort to align with regulatory changes and respond to industry concerns about unnecessary de-risking of politically connected individuals.

The guidance introduces clearer expectations around the treatment of domestic versus non-domestic PEPs, the seniority of individuals requiring sign-off, and incorporates legal updates following the Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (2023 Regulations). There is greater focus on proportionality, better record-keeping, and enhanced oversight.