Politically Exposed Person (PEP)

Definition

A Politically Exposed Person (PEP) is someone who has been entrusted with a prominent public function, such as a government minister, senior judge, ambassador, or high-ranking military officer. This definition extends to their close family members and known close associates.

The rationale is that such individuals may be more vulnerable to corruption or abuse of position, making their financial activity higher risk.

Why it matters

Under the UK Money Laundering Regulations 2017, regulated firms must identify PEPs and apply Enhanced Due Diligence before entering into or continuing a business relationship with them.

PEP status alone is not evidence of wrongdoing, but it does require additional scrutiny to ensure that funds are legitimate and the relationship is not being used for illicit purposes.

How PEP identification and management works

1. Screening – Check clients against PEP databases during onboarding and periodically thereafter.
2. EDD application – Gather additional information on the PEP’s background, source of funds, and source of wealth.
3. Senior management approval – Obtain internal authorisation before establishing or continuing the relationship.
4. Ongoing monitoring – Increase transaction monitoring and review frequency while PEP status applies.
5. Declassification – PEP status generally remains for at least 12 months after leaving office, but firms may apply a longer period based on risk.

Examples and use cases

• Foreign PEPs – Ministers, ambassadors, or senior officials from other countries.
• Domestic PEPs – UK MPs, senior judges, or heads of public bodies.
• Associated persons – Spouses, business partners, or close family members of a PEP.

Mini-FAQ

Q: Are all PEPs treated the same?
A: No. UK law distinguishes between domestic and foreign PEPs, with foreign PEPs typically requiring more stringent measures.

Q: Can you refuse a client purely for being a PEP?
A: There is no legal requirement to refuse PEPs, but firms may decline if the risk is unacceptable.