News

PEP talk: The UK FCA issues final guidance on the treatment of politically exposed persons

29 July 2025

News

PEP talk: The UK FCA issues final guidance on the treatment of politically exposed persons

The Financial Conduct Authority (“the FCA”) has published final guidance on the treatment of politically exposed persons (PEPs) for anti-money laundering purposes, which updates its Guidance issued in 2017 (“the 2017 Guidance”). A PEP is someone who is entrusted with prominent public functions either in the UK or elsewhere in the world. The final guidance assists firms with complying with their legal obligations to undertake enhanced due diligence (“EDD”) on PEPs, their families and close associates. Publication of the final guidance follows a multi-firm review undertaken by the FCA on how effectively firms were following its 2017 Guidance, and a consultation in July 2024 in which the FCA proposed some changes to the 2017 Guidance.

Chapter 1 What has changed?

The FCA published its final guidance on 7 July 2025 and made minor revisions to the guidance on 15 July 2025 (“the Final Guidance”).

The Final Guidance assists firms with complying with their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the Regulations”) which require them to undertake enhanced due diligence (“EDD”) on PEPs, their families and close associates. This is to address the increased risk that PEPs, and those connected to them, may be targeted for bribery and corruption and the financial system used to launder the proceeds.

The Regulations and the Final Guidance clarify that a case-by-case approach is required with the risk assessment of individual PEPs. The Final Guidance sets out indicators which might suggest whether a PEP poses a higher or lower risk, and due diligence measures in each scenario. The FCA clarifies that firms should only take additional measures beyond those set out in the Final Guidance where this is justified on the basis of their risk assessment or the customer has risk factors unrelated to their position or connection to a PEP.

The Final Guidance updates and replaces the 2017 Guidance. The FCA says that the Final Guidance should be read in conjunction with the findings from its multi-firm review published in July 2024 which provides examples of good and poor practice by firms. See our previous article here.

The key changes are as follows:

Reflecting changes to the Regulations relating to domestic PEPs

The Final Guidance expressly states that the starting point for the risk assessment for a domestic PEP, their family members or known close associates is that they present a lower level of risk than a foreign PEP. This reflects amendments to the Regulations implemented in January 2024 which introduced a presumption of lower risk for all such individuals. (The FCA adds that this does not mean that a foreign PEP will always be higher risk; a firm may assess a foreign PEP to be lower risk).
The Final Guidance clarifies that this approach to domestic PEPs, their family members or known close associates applies across the whole firm group, including overseas subsidiaries and branches, as far as permitted by local law in a particular jurisdiction.
Where an individual holds functions that meet the definition of both a domestic PEP and a foreign PEP a firm should treat them as a foreign PEP. In line with the Final Guidance, firms should assess the risk of that customer and apply the appropriate measures for lower or higher risk situations.

Amendments to the definition of a PEP

The FCA has made some amendments to the definition of who is a PEP. It has:
- Added a link to a UK government website list of international organisations to help firms to decide whether someone is a director, deputy director or board member of an international organisation.
- Clarified that Vice Admiral, Lieutenant General or Air Marshal are the only equivalent military ranks to the level of Permanent Secretary/Deputy Permanent Secretary for the UK government.
- Included the “Northern Ireland Assembly and Northern Ireland Executive” as a “similar legislative body” to the UK parliament, in a list which currently includes the Scottish Parliament and the National Assembly for Wales.

Treatment of NEMBs of UK civil service departments

Non-executive board members (NEBMs) are appointed to government departments from the public, private and voluntary sectors. Their role is to provide advice and bring an external perspective and, as such, they do not have any executive authority. During its multi-firm review, the FCA became aware that some firms might be treating NEBMs as PEPs.
The Final Guidance clarifies that firms should not treat NEBMs of central government boards in the UK as PEPs unless they already meet the definition of a PEP in respect of another capacity (e.g a Member of the House of Lords).

Sign off for PEP relationships

The Regulations require that all PEP relationships are signed off by “senior management”.In terms of which functions within a firm should be considered to be “senior management, the FCA’s 2017 Guidance set the expectation that all PEP relationships were to be signed off at a minimum by the Money Laundering Reporting Office (“MLRO”) with higher risk relationships potentially being signed off at a higher level. Feedback from the industry to the FCA’s consultation raised concerns about the MLRO’s independence.
Taking on board this feedback, in its Final Guidance the FCA now allows firms to allocate sign off for PEP relationships to anyone who has sufficient knowledge of the firm's money laundering, terrorist financing and proliferation financing risk exposure, and has sufficient authority to take decisions affecting its risk exposure, provided the MLRO continues to have oversight of all PEP relationships within the firm.This approach follows the definition of “senior management” in the Regulations and provides firms with a level of flexibility (such that in lower risk situations, sign off may be at a lower level of seniority, provided that the person has authority for such decisions).Firms should clearly document who these staff are, and train them on the requirements for approval.
MLROs must be aware of any PEPs onboarded or rejected as part of their role of overseeing the operation of a firm’s anti-money laundering framework.Awareness does not require oversight of all decisions, but an MLRO will need to ensure their approach to PEPs operates in line with the Final Guidance and the Consumer Duty.

Other miscellaneous changes

Where firms continue to apply EDD to a customer who is no longer a PEP (if this is appropriate to address the money laundering risks that that person presents), the Final Guidance confirms that the firm must clearly document the rationale for doing so.
As with the 2017 Guidance, the Final Guidance includes a non-exhaustive list of individuals who should be considered to be “family members” of a PEP (comprising spouse/civil partner, children and their spouses/civil partners, parents and siblings) and explains that, where a firm has assessed a PEP to be higher risk, it may be appropriate to include a wider circle of family members than those included in the list. The Final Guidance clarifies that a firm must include the definition of “family member” that it applies to a situation, and its rationale, as part of its policies and procedures.
The Final Guidance states that the FCA expects firms to monitor a customer’s PEP status as part of ongoing reviews, or when it first becomes aware of situations which may change a customer’s PEP status.The FCA clarifies that, for UK elections, it considers firms will be aware of outcomes as they will be in the public domain. The FCA permits firms to ask their customers to let them know about a change of circumstance.
Regarding beneficial ownership of a company by a PEP, the Final Guidance clarifies that a legal entity should not be classified as a PEP unless the firm is completely satisfied that a PEP is exercising significant control.

Chapter 2 What can we do to help?

The changes in the Final Guidance are not extensive but are nevertheless important.

You may wish to consider the following areas of uncertainty left open in the Final Guidance, when reviewing your policies, procedures and screening tool settings:

Non-executive board members:
- The Final Guidance confirms that individuals holding 'figurehead' roles should not be treated as PEPs. A ‘figurehead’ role may include a non-executive director but care is needed when assessing non-executive directors who are not merely 'figureheads'. For instance, it remains unclear whether a non-executive director holding a senior management function in a regulated firm could be considered merely a ‘figurehead’.
- Firms may find it difficult to determine whether a non-executive director is an active member of the organisation’s decision-making, or is only a ‘figurehead’, without performing further due diligence.
England’s strategic authority mayors:
- The Final Guidance reconfirms that local government roles in the UK would not be ‘prominent political functions’ for the purposes of identifying PEPs, but acknowledges that the definition of a ‘prominent public function’ will vary according to the nature of the function held.
- FATF's guidance on PEPs (paragraph 38) indicates that a prominent public function may exist at provincial or municipal levels. This assessment should consider factors such as the number of inhabitants, the size of the budget, and the powers and responsibilities involved.
- As the number of inhabitants within the remit of a number of England’s strategic authority mayors is larger than those covered by the Northern Ireland Assembly, the National Assembly for Wales and (in the case of Mayor of London) the Scottish Parliament, some uncertainty remains for firms about whether or not some of England’s strategic authority mayors hold ‘prominent public functions’ and should be treated as PEPs.
- The Final Guidance appears, therefore, to leave it open to firms to determine for themselves whether or not a strategic authority mayor is holding a ‘prominent public function’. However, firms should document their decision, especially if they are uncertain whether a strategic authority mayor falls within the list in the Final Guidance section titled “Who should be treated as a PEP”.
Family members and close associates:
- The Final Guidance reaffirms that siblings of PEPs should be considered family members of PEPs, in addition to the relationships already specified in the Regulations. Additionally, the Final Guidance clarifies that while this list is comprehensive for lower-risk PEPs, it is not exhaustive for higher-risk PEPs and should be expanded as necessary.
- This distinction can be challenging for firms to implement within their screening controls. Screening systems are commonly used to identify family relationships. Many of these systems allow the firm to select specific PEP familial relationships to screen its customers against. The information is sourced from vendor lists, where the vendor has researched and identified the relationships between individuals and PEPs.
- Screening systems are unlikely to effectively filter individuals based on both familial relationships and the PEP risk category. As a result, firms may need to expand their screening criteria beyond what is outlined in the Final Guidance. This could lead to a manual review process to determine whether EDD should be applied when investigating alerts from the screening system. Consequently, firms may face a trade-off between the costs and potential friction this manual review might create for customers, and the risk of overlooking significant familial connections related to higher-risk PEPs.
- Whatever approach the firm decides to take, it must make sure its operational controls are aligned to the definition and rationale the firm has documented in its policies and procedures.