The U.K. Regulator "FCA" - issue final guidance on PEPs for MLRO

Beirut 12 July, 2017 05.45

 

Revised by Bachir El Nakib, (CAMS) Senior Consultant, Compliance Alert (LLC)

The Financial Conduct Authority (FCA) has amended some of its guidance for politically exposed persons, it said in a feedback document. The regulator appreciates firms want certainty, it said.

On the definition of a PEP, the FCA has provided further guidance that restricts the application of PEP in the UK to only national or local governments and very senior officials, it said.

In the light of significant response, the FCA has amended the PEP guidance to assert that it believes family members should include brothers or sisters. In addition, it provides further text on how a firm might apply, on a risk-based approach, the definition more broadly to wider family where there is a risk.

The regulator has clarified in the finalised guidance that firms should consider all relevant factors when coming to a conclusion on whether a PEP, family member or close known associate is higher or lower risk. The FCA has provided a new chapter setting out how it expects firms to assess and document risk on PEPs, including information sources they might use and its expectation on levels of sign-off for higher and lower risk PEP relationships.

More certainty

"With this finalised guidance, the FCA has provided more certainty on who is a PEP and who is not, but firms must still exercise their own judgement," said Guy Wilkes, partner, Mayer Brown. "A firm may consider a person high risk even when they are not a PEP," he said.

"For example, firms may take the view that an individual with a high ranking in an international sporting body is high risk, although the FCA's position now is that such a person is not a PEP."

He noted that for firms, PEPs are only one category of high risk customers. As far as PEPs are concerned, firms must judge if a person is a high risk or low risk PEP based upon the firm’s own systems and procedures tailored to the unique risk profile of the firm.

"The FCA has made clear that family members includes brothers and sisters. This is in line with JMLSG guidance already in place and so banks will already have been applying enhanced due diligence to those customers."

UK PEPs

The FCA said it had found it right that its PEP guidance should require only a small number of office holders in the UK to be treated as PEPs.

The policy intention points to those holding public office in the UK as low risk because of checks and balances existing in parliamentary audit and journalistic scrutiny, and the lower risk environment created by the UK's focus on anti-corruption, it said.

The Financial Action Task Force (FATF) standards, unlike the Fourth Money Laundering Directive, distinguishes between foreign and domestic PEPs, the FCA said. 

"We therefore consider that our position that UK PEPs should be treated as lower risk is consistent with FATF standards," it said.

The European Union is discussing amendments to 4MLD so that European Economic Areas PEPs are only subject to standard customer due diligence measures unless other risks are apparent, it said.

The FCA has clarified that the Treasury does not intend to approve its guidance.

https://www.fca.org.uk/publication/finalised-guidance/fg17-05.pdf