Politically Exposed Persons Regime

What are PEPs?

Politically exposed persons (PEPs) are individuals around the world with “prominent public functions”. Obvious examples are Government Ministers and Members of Parliament.

The law recognises the risk of PEPs abusing their positions for private gain and using the financial system to launder the proceeds of this abuse. PEPs, as well as their families and close associates, must therefore go through enhanced scrutiny when using the services of certain firms that act as ‘gatekeepers’ to the financial system, such as banks.

The law on PEPs

The Financial Action Task Force is an international body that sets and monitors anti-money laundering and counter-terrorist financing standards. Its recommendations (including on PEPs) have been adopted at EU level through directives, which have been implemented in the UK by secondary legislation.

UK law requires “gatekeepers” to the financial system to perform enhanced checks on PEPs, their families and their known close associates. Such firms need to have measures in place to identify PEPs, assess the level of risk they pose, and manage the relationship appropriately. Criminal and regulatory sanctions are available for non-compliance.

In a December 2018 report, the Financial Action Task Force rated the UK “compliant” with its main recommendation on PEPs, noting that “all criteria are met”.

Criticism of the regime

PEPs, including British politicians, have criticised the current regime and its application, arguing that it results in excessive due diligence requirements being imposed upon them, their families or their close associates by banks and other firms.

Financial Conduct Authority guidance published in July 2017 sought in part to address these issues. In November 2021 a number of peers raised concerns that firms were still imposing disproportionate due diligence requirements on them and their families.

For wider information about economic crime in the UK, see our briefing Economic crime in the UK: a multi-billion pound problem.