UK Government Initiates FCA Review of Politically Exposed Person (PEP) Risk Management Guidelines

In July 2023, the UK government requested the Financial Conduct Authority (FCA) to review its guidelines concerning risk management for politically exposed persons (PEPs). This request arose due to reports of some financial institutions limiting PEPs’ and their associates’ access to financial services.

The FCA’s review will encompass the following aspects:

1. The application of the PEP definition to individuals.
2. The conduct of appropriate risk assessments for PEPs residing in the UK, their family members, and close associates.
3. Implementation of enhanced due diligence (EDD) and continuous monitoring procedures based on the risk level.
4. Determination of whether to reject or close accounts for PEPs and their associates.
5. Effective communication with PEP customers.
6. Ongoing review and adjustment of PEP controls to maintain their adequacy.

The FCA is set to present its findings by June 30, 2024. If significant deficiencies are identified in the procedures of any assessed firm, the FCA will take prompt corrective actions.

Best Practices for PEP Risk Management:

1. Prioritize high-quality data collection to determine PEP status accurately and swiftly.
2. Enhance PEP screening with additional checks like adverse media screening.
3. Adopt a risk-based approach by customizing search profiles based on the firm’s business model and risk tolerance.
4. Regularly update PEP status as it changes over time.
5. Continuously monitor regulatory trends to ensure ongoing adaptability and compliance.

As the FCA completes its review, compliance teams should anticipate updated guidance. In the interim, firms can refer to existing guidance, such as the Wolfsberg Group’s PEP guidance, the FCA’s 2017 PEP Guidance, and the 2023 Financial Crime Guide, as well as the Joint Money Laundering Steering Group’s 2023 financial sector guide.