FCA Updates PEP Guidance, Urges Proportionate Approach to Politically Exposed Persons

The UK’s Financial Conduct Authority has issued final guidance (FG25/3) on the treatment of Politically Exposed Persons (PEPs) under the Anti Money Laundering (AML) framework.

While the 2017 guidance (FG17/6) remains broadly applicable, the updated version incorporates changes to the Money Laundering Regulations (MLRs) and other recent amendments. It also involves findings from the multi-firm Politically Exposed Persons(PEPs) review, which was completed in 2024.

FCA calls on financial institutions to apply a risk-based and proportionate approach to treat PEPs. Applying the same level of due diligence is not the solution, as some PEPs may pose a lower risk, while others may pose a higher one. This guidance highlights various indicators to categorize PEPs as lower-risk or high-risk.

Firms “must apply a risk-sensitive approach” to identify PEPs and conduct enhanced due diligence (EDD), assessing each PEP case-by-case rather than with a one-size-fits-all rule

The guidance narrows the PEP scope, as only “truly prominent” UK office holders are considered PEPs.  It clarifies that non-executive board members (NEBMs) of civil service departments in the UK are not roles that a firm should be treating as a PEP.

The FCA explicitly warns that definitions do not apply to local councillors, junior civil servants, or all but the most senior military officers.

In addition, this guidance addresses long-standing concerns over the disproportionate treatment of domestic politicians, their families, and associates under anti-money laundering (AML) rules.

“Regulation 35(3A) requires that a domestic PEP represents a lower level of risk compared to non-domestic PEPs.”Financial Conduct Authority

While some media reports have focused on the shift in tone and protection for UK politicians, several key regulatory clarifications in the document remain underreported.

One such clarification is that individuals who hold both UK (domestic) and foreign public positions must be treated as foreign PEPs. They are subject to a higher risk assessment standard and Enhanced Due Diligence (EDD).

On the other hand, firms may apply a lighter EDD for lower-risk PEPs who are domestic or from countries with low corruption.

However, dual-role cases that hold both UK and overseas offices must be treated as foreign PEPs.

The FCA notes that firms should still apply proportionate controls but must default to the stricter foreign PEP regime in cases involving dual roles.

Where is it not to apply EDD?

The FCA also draws a clear line between ownership and control. A company is not automatically a PEP-related entity simply because a PEP owns shares in it. Firms must establish whether the PEP exercises actual influence or control before applying enhanced due diligence to the entity.

The FCA makes clear that individuals who are business partners or joint account holders with a PEP are not automatically high-risk. Instead, firms must assess such relationships on a case-by-case basis, considering the nature and context of the association.

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Notably, the guidance reaffirms that senior management, typically the MLRO or equivalent, must approve all PEP relationships and maintain oversight of documentation and decisions. Senior management sign-off rules are more flexible; firms can delegate approval for PEP relationships to suitably senior staff, once the MLRO maintains oversight of the process.

The document highlights the 12-month continuation of PEP status after public officials leave office. However, it does not apply to their family or close associates, who revert to standard customer due diligence.

The FCA’s latest guidance follows a 2024 multi-firm review that uncovered inconsistent and excessive treatment of UK PEPs. Firms are now expected to update their AML frameworks to reflect this more targeted and legally grounded interpretation, or risk supervisory consequences.

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