Treatment of Politically Exposed Persons under the Money Laundering Regulations

My Noble Friend the Treasury Lords Minister (Baroness Vere of Norbiton) has today made the following Writen Ministerial Statement.

Today the Government has laid The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371) a Statutory Instrument to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations) in relation to the treatment of Politically Exposed Persons (PEPs) who are entrusted with prominent public functions by the UK (known as ‘domestic PEPs’).

The amendment makes clear that under the Regulations the starting point for banks and other regulated firms in their treatment of domestic PEPs, or a family member or known close associate of a domestic PEP, must be to treat them as inherently lower risk than non-domestic PEPs. Accordingly, regulated firms must apply a lower level of enhanced due diligence to domestic PEPs compared to non-domestic PEPs, unless other risk factors are present.

The Government is making this change in order to ensure that banks and other regulated firms take a proportionate and risk-based approach to the treatment of domestic PEPs, in line with the Government’s broader approach to anti-money laundering and counter-terrorism financing (AML/CTF) controls. While the new requirements have featured for some time in FCA guidance on the treatment of PEPs, legitimate concerns continue to be raised that a number of holders of prominent public positions have encountered problems accessing financial services due to their status as Politically Exposed Persons under the Regulations, as have their family members. Often, this takes the form of potentially disproportionate or overly frequent requests for information about personal financial matters and affects both PEPs themselves and family members or close associates. The Government is fully committed to tackling money laundering, terrorist financing and corruption, but it will always work to ensure this is done in a proportionate, risk-based way that avoids undue burdens on law-abiding citizens.

SI 2023/1371 fulfils the Government’s commitment set out in Section 77 of the Financial Services and Markets Act 2023 (the Act) to amend the Regulations to make it clear that the starting point for AML/CTF-regulated firms when considering their treatment of domestic PEPs and their relations and close associates should be to treat them as inherently lower-risk than non-domestic PEPs.

Section 78 of the Act also committed the Financial Conduct Authority to conduct, and publish the conclusions of, a review into how financial institutions are following its guidance. This review will consider whether the FCA’s guidance on PEPs remains appropriate, and the FCA will be required to amend its guidance if the review finds it necessary to do so. If the FCA finds that the guidance is no longer appropriate, it will publish draft revised guidance for consultation, taking into account the Treasury’s amendment to the Regulations, within the 12-month timeframe given for the review (i.e., by 29 June 2024). Given the strength of concern on this issue, the Government expects that the FCA will prioritise this important review over the coming months.

The Government would like to thank again those who have taken the time to raise these issues, and those who have engaged with the FCA’s review.

Article Credit: https://questions-statements.parliament.uk/written-statements/detail/2023-12-14/hcws134