FCA Politically Exposed Persons (PEPs) guidance updated

On 7 July 2025, the Financial Conduct Authority (FCA) published Finalised Guidance FG25/3 on the treatment of Politically Exposed Persons (PEPs) for anti-money laundering (AML) purposes.

This guidance is aimed at helping firms apply a proportionate and risk-based approach to PEPs, their relatives, and close associates under the Money Laundering Regulations 2017[1].

Key Highlights from FG25/3:

• Clarification on UK Civil Servants: Firms should not treat non-executive board members of UK civil service departments as PEPs.
• Legislative Updates: The guidance reflects changes to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
• PEP Business Relationship Sign-off: Updates were made to the process for approving business relationships with PEPs.
• Scope: Applies to FCA-supervised firms and is also relevant to trade associations, NGOs, academics, and customers who may be classified as PEPs or their associates.

The FCA also released a revised version on 15 July 2025 to include clarifications that were intended in the original publication.

Here’s a summary of the FCA’s Finalised Guidance FG25/3 on the treatment of Politically Exposed Persons (PEPs), published on 7 July 2025 and revised on 15 July 2025:

🧭 Key Updates in FG25/3

• Clarification on UK Civil Servants:
• Firms should not treat non-executive board members of UK civil service departments as PEPs.
• Legislative Alignment:
• Reflects updates to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
• PEP Relationship Sign-off:
• Updates the process for approving business relationships with PEPs, ensuring it is risk-based and proportionate.
• Risk-Based Approach Emphasis:
• Reinforces that UK PEPs are generally lower risk; and
• Enhanced due diligence (EDD) should only be applied where other high-risk indicators are present.

🧩 Practical Implications for Your AML Policies

If you're managing AML compliance at your firm, here’s how this guidance might affect your policies:

• Policy Review:
  • Update your internal AML policies to reflect the new definition exclusions (e.g., non-executive civil servants); and
  • Ensure your PEP identification procedures align with the risk-based approach.
• Training:
  • Train staff on the updated criteria for identifying PEPs and applying EDD only when justified.
• Customer Experience:
  • Avoid unnecessary friction for UK PEPs and RCAs by minimising intrusive checks unless risk factors warrant them.
• Governance:
  • Review your sign-off procedures for onboarding or continuing relationships with PEPs to ensure they are proportionate.

AML Policy Checklist Based on FCA FG25/3 Guidance:

1. Policy Updates
- Review and update AML policies to reflect FG25/3 guidance.
- Exclude non-executive board members of UK civil service departments from PEP classification.
- Ensure PEP identification procedures are risk-based and proportionate.
- Align policies with updated Money Laundering Regulations 2017.

2. Staff Training
- Train staff on revised PEP definitions and exclusions.
- Educate teams on applying Enhanced Due Diligence (EDD) only when justified by risk indicators.
- Provide examples of low-risk UK PEP scenarios to avoid unnecessary checks.

3. Customer Experience
- Minimise intrusive checks for UK PEPs and their relatives/close associates (RCAs).
- Ensure onboarding procedures are proportionate and do not create friction for low-risk customers.
- Communicate clearly with customers about AML procedures and their rationale.

4. Governance and Oversight
- Review and update sign-off procedures for PEP business relationships.
- Ensure senior management is involved in high-risk PEP decisions.
- Document rationale for EDD application and PEP classification decisions.

5. Monitoring and Review
- Establish periodic reviews of PEP classifications and AML procedures.
- Monitor regulatory updates and incorporate changes into AML policies.
- Maintain audit trails for PEP-related decisions and customer interactions.

References

[1] FG25/3: Treatment of politically exposed persons | FCA https://www.fca.org.uk/publications/finalised-guidance/fg25-3-treatment-politically-exposed-persons

https://www.fca.org.uk/publication/finalised-guidance/fg25-3.pdf