Miscellaneous Politically exposed persons: money laundering and terrorist financing
The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs) are an important part of the UK’s anti-money laundering regime, requiring regulated businesses, such as banks and lawyers, to identify and verify the identity of their customers to ensure their services are not abused for illicit purposes such as money laundering or corruption. They derive from international standards, for example from the Financial Action Task Force (FATF) or the UN Convention on Corruption, and are in line with those applied by most other G7 countries.
	The MLRs define Politically Exposed Persons (PEPs) as those who hold prominent public functions, including all MPs and Peers. Regulated businesses must carry out enhanced due diligence (EDD) checks on PEPs, their family members and known close associates, owing to their increased risk of being targeted for criminal purposes, for example by serious organised criminals or hostile state actors. EDD measures include seeking additional assurance of a customer’s identity and information on their sources of wealth.
	To ensure firms were prepared to meet the obligation to apply EDD to domestic PEPs in a proportionate manner, the FCA issued guidance in 2017 on the treatment of PEPs by financial institutions. This guidance is clear that domestic PEPs should be treated as lower risk than non-domestic PEPs unless other risk factors are present, and that firms should simplify their EDD measures accordingly, for example by relying on existing or publicly available information rather than making new requests.
	A number of Parliamentarians raised concerns about disproportionate treatment from banks and financial institutions due to their status as PEPs, linked to burdensome requests for additional information and in some instances themselves or family members being denied accounts.
	The Act introduces two provisions to ensure the distinction between domestic and overseas PEPs is clear in law and that financial institutions are adhering to the approach set out in the FCA’s guidance.