Politically Exposed Persons (PEPs): The Complete UK Guide

PEP Identification, Screening and Risk Management Under MLR 2017

Politically Exposed Persons (PEPs) — individuals entrusted with prominent public functions, together with their family members and known close associates — sit at the centre of the UK’s anti-money laundering framework. The risk-based rationale is straightforward: PEPs hold positions that create elevated potential for involvement in bribery, corruption or misappropriation of public funds, and the regulatory framework therefore requires regulated firms to identify them, apply Enhanced Due Diligence, obtain senior management approval to establish or continue the relationship, and apply intensified ongoing monitoring throughout the relationship lifetime.

This guide explains how the PEP framework works in practice — the regulatory definition under MLR 2017, the practical PEP screening process, the operational reality of managing PEP populations at scale, and the FCA’s evolving expectations including the 2023 Treasury review and 2024 FCA guidance updates that have refined the regime. It also covers the recruitment dimension — what financial crime teams need to look like to manage PEP frameworks effectively, and the senior management governance that PEP relationships require.

What’s missing from most online explanations of PEPs is the practical operational detail. The definition is set out in regulation; this guide describes what good PEP screening, EDD application, and ongoing monitoring actually look like in modern UK regulated firms — and where firms commonly run into difficulty.

The PEP Definition Under MLR 2017

Regulation 35(12) of MLR 2017 defines a PEP as an individual who is or has been entrusted with a prominent public function, including (but not limited to):

• Heads of state, heads of government, ministers and deputy or assistant ministers
• Members of parliament or similar legislative bodies
• Members of supreme courts, constitutional courts, or other high-level judicial bodies whose decisions are not subject to further appeal except in exceptional circumstances
• Members of courts of auditors or boards of central banks
• Ambassadors, chargés d’affaires and high-ranking officers in the armed forces
• Members of the administrative, management or supervisory bodies of state-owned enterprises
• Directors, deputy directors and members of the board (or equivalent) of international organisations

The definition explicitly excludes middle-ranking and junior officials — the focus is on prominent public functions where the corruption risk is elevated.

Family members and known close associates

The PEP framework extends to family members and known close associates of the PEP. Under Regulation 35(12), family members include:

• The spouse or civil partner of the PEP
• Children of the PEP and their spouses or civil partners
• Parents of the PEP

Known close associates include:

• Individuals known to have joint beneficial ownership of legal entities or arrangements with the PEP, or any other close business relations with the PEP
• Individuals who have sole beneficial ownership of legal entities or arrangements set up for the de facto benefit of the PEP

The “known close associate” category requires the firm to have actual knowledge — it does not impose a general duty to investigate every business relationship of every PEP. But where the firm has information indicating a close business relationship, the associate falls within scope.

Domestic vs Foreign PEPs — The 2023 Treasury Review

The MLR 2017 framework historically applied a single PEP standard regardless of whether the PEP held a domestic UK or foreign public function. In 2023, the UK Treasury reviewed this approach following Parliamentary concern that the framework was being applied disproportionately to UK domestic PEPs (MPs, ministers, judges, ambassadors), creating banking access issues for UK public servants and their families.

The Treasury review and subsequent FCA guidance (FG24/1) introduced a differentiated approach:

The FCA’s 2024 guidance (FG24/1) makes clear that domestic UK PEPs are a starting point of lower risk, with EDD measures applied proportionately. Where additional risk factors apply (high-risk jurisdiction connections, complex wealth, adverse media), the proportionality argument weakens and more intensive measures may be required.

PEP Screening — How It Works in Practice

PEP identification is operationally straightforward in concept and complex in execution. The firm screens its customer base — and beneficial owners of corporate customers — against PEP databases that aggregate public information about individuals holding prominent public functions globally.

Specialist PEP databases

Major financial crime data providers (Refinitiv World-Check, Dow Jones Risk & Compliance, LexisNexis WorldCompliance, ComplyAdvantage, Moody’s Analytics, and others) maintain comprehensive PEP databases covering:

• Current PEPs holding prominent public functions
• Former PEPs (typically classified as PEP for at least 12 months after leaving office, longer where risk factors warrant)
• Family members and known close associates
• Source jurisdictions (foreign vs domestic)
• PEP role detail (specific position held, dates)

Coverage and quality vary across providers. Firms typically select a primary provider based on coverage of their customer geography and risk profile, with some firms running parallel screening across multiple providers for higher-risk populations.

Screening at onboarding

Every customer (and beneficial owners) is screened against PEP databases at onboarding. Modern automated systems return results in seconds, with positive matches routed to specialist analysts for confirmation and EDD initiation.

Continuous screening

The PEP population changes daily — individuals enter PEP status through new appointments, leave through retirement or removal from office, family relationships change. Modern frameworks rescreen the customer base continuously (typically daily) against updated PEP databases, identifying customers whose PEP status has changed.

False positive management

PEP screening generates substantial false positives — common name matches against unrelated PEPs, particularly for customers with very common names. Effective frameworks include strong false positive management workflows: secondary identification verification, name matching algorithms tuned to the firm’s customer base, and analyst time appropriately allocated to genuine investigations rather than common name disambiguation.

EDD for PEP Relationships

Where a customer is identified as a PEP, EDD applies under Regulation 35. The EDD measures specific to PEPs include all the standard EDD measures (see our EDD Guide) plus:

• Senior management approval to establish or continue the relationship
• Source of wealth and source of funds verification with substantive evidence
• Enhanced ongoing monitoring with PEP-specific transaction monitoring scenarios
• Annual review at minimum, with re-verification of source of wealth, refreshed senior management approval, and refreshed risk assessment

Senior management approval — what it requires

Senior management approval for PEP relationships is one of the most operationally significant requirements. The “senior management” standard requires someone with authority to make an informed risk-based decision — typically interpreted in practice as:

• For most firms: a senior member of the financial crime committee, the MLRO, or a senior manager at director level or above
• For higher-risk PEP relationships: an SMF holder personally — frequently the SMF1 (CEO), SMF16 (Compliance Oversight) or another named SMF
• For the highest-risk PEPs: board-level approval may be appropriate

The substantive standard is genuine engagement with the relationship’s risks, not pro-forma sign-off. FCA reviews increasingly examine whether senior management approval is supported by evidence the senior manager engaged with the actual EDD work — not just the summary.

Source of wealth verification depth

For PEPs, source of wealth verification is held to the highest standard. The firm must understand and document how the customer accumulated their overall wealth — typically through:

• Documented career history and remuneration
• Business interests and sale proceeds
• Inheritance documentation
• Investment returns over multi-year periods
• Family wealth structures (where applicable)

For foreign PEPs particularly, the source of wealth assessment is the most operationally demanding component of the EDD work. Senior financial crime analysts with experience in wealth verification are valuable here.

Declassification — When and How a PEP Stops Being a PEP

One of the more nuanced areas of PEP frameworks is declassification — the point at which a former PEP can be removed from PEP status and treated as a standard customer.

The MLR 2017 framework requires firms to continue applying PEP status for at least 12 months after the individual ceases to hold the prominent public function — and longer where the firm’s risk-based assessment indicates ongoing PEP-related risk. The FCA’s 2024 guidance reinforced that the 12-month minimum is just that: firms should consider whether longer continuation is appropriate based on:

• The seniority of the previous role and its corruption potential
• Whether the individual continues to have influence post-office
• The integrity of public office in the jurisdiction concerned
• Whether the individual has ongoing wealth or transaction patterns suggesting continued PEP-related exposure

Strong PEP frameworks include a declassification process — analyst review of the case at least annually after the 12-month minimum, recommendation for continuation or declassification, and senior management decision on the outcome.

Family Members and Close Associates — The Identification Challenge

Identifying PEP family members and close associates is operationally more complex than identifying the PEPs themselves. The major data providers maintain known family member and associate databases, but coverage is necessarily incomplete — particularly for:

• Adult children using different surnames
• Step-relations and adopted relations
• Close business associates not publicly identified
• Indirect connections through trusts or holding entities

Strong PEP frameworks combine database screening with risk-based investigation — particularly for higher-risk customers, the firm investigates beyond automated screening to identify potential PEP connections.

PEP Frameworks in Different Sectors

PEPs in wealth management and private banking

Wealth management has the highest concentration of PEP relationships in UK financial services. Strong wealth management PEP frameworks have specialist EDD teams, senior partners typically holding the senior management approval role, and substantial focus on source of wealth verification.

PEPs in retail banking

Retail banking PEP populations are dominated by domestic UK PEPs (MPs, ministers, judges, public officials). The 2023 Treasury review and 2024 FCA guidance specifically aimed to ensure proportionate handling of this population — historically, retail banks had been reported as denying or closing accounts for UK domestic PEPs in ways the Treasury found disproportionate.

PEPs in payments firms

Payments firm PEP exposure is typically through transaction patterns rather than primary customer relationships. The transaction monitoring framework needs to identify PEP-related transactions and apply enhanced scrutiny.

PEPs in asset management

Asset management PEP exposure is typically through ultimate beneficial owners of fund investors. The framework operates through fund-level KYC (often delegated to transfer agents) with PEP identification flowing back to the firm for senior management approval and ongoing oversight.

Common PEP Pitfalls

Inconsistent application of domestic vs foreign PEP guidance. Following the 2024 FCA guidance, firms need to apply differentiated treatment of UK domestic PEPs versus foreign PEPs in a consistent, documented way. Frameworks that haven’t been refreshed for the new guidance are at supervisory risk.

Pro-forma senior management approval. Senior management approval signed off based on summary papers without sight of the underlying EDD work fails the substantive engagement standard.

Static source of wealth assessment. Source of wealth captured at onboarding and never refreshed becomes outdated. Annual refresh is required.

Family member coverage assumptions. Firms relying solely on automated database screening for family member and close associate identification should expect supervisory questioning on the limitation.

Declassification processes that don’t exist. Firms that classify customers as PEPs but have no declassification mechanism end up with growing PEP populations over time, including individuals whose PEP status has long since become inappropriate.

EDD documentation that doesn’t reflect substantive work. Generic EDD files that don’t show the substantive work undertaken for the specific PEP relationship fall short of the standard required.

Inadequate technology for continuous screening. Where rescreening operates on a manual or low-frequency basis, customers whose PEP status changes can remain undetected for months.

Further Reading and Authoritative Sources

For the regulatory framework, see Regulation 35 of MLR 2017. For the FCA’s 2024 guidance on PEPs, see FG24/1. The JMLSG Guidance provides detailed sector-specific implementation guidance.

Related Guides: AML and Financial Crime

Part of FD Capital’s series of practical guides for FCA-regulated firms: MLRO Guide — Pillar | Customer Due Diligence (CDD) | Enhanced Due Diligence (EDD) | Know Your Customer (KYC) | Sanctions Screening | MLR 2017 Compliance Guide | Transaction Monitoring | Suspicious Activity Reports (SARs) | SMF17 — The MLRO Function