FCA Politically Exposed Persons (PEPs) guidance – who is and who is not a PEP

IN THE UK, THE FCA SAYS A PEP is defined as someone:

• Test 1 = holding a prominent PUBLIC POSITION either in the UK or elsewhere in the world.

AND

• Test 2 = who is entrusted with PROMINENT PUBLIC FUNCTIONS either in the UK or elsewhere in the world.

The UK’s Financial Conduct Authority (FCA)

• Relies on definitions aligned with anti-money laundering (AML) and counter-terrorist financing regulations, primarily derived from the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), which implement EU directives and FATF (Financial Action Task Force) standards.
• Does not provide standalone definitions for "public position" or "prominent public functions" in its handbook. Still, these terms are clarified in the context of UK AML regulations (regulation 35(14) of the MLRs) and FATF recommendations.  

Below, I explain each term based on these sources.

Definition of "Public Position"

• A "PUBLIC POSITION" refers to a role or office held within a governmental or public institution, typically involving authority, responsibility, or influence over public affairs. While the FCA and MLRs do not explicitly define "public position" as a standalone term, it is implied to encompass roles within state or public bodies where an individual exercises official duties. This includes positions in:
• Government (e.g., ministers, heads of state, or government officials);
• Legislative bodies (e.g., members of parliament or equivalent assemblies);
• Judicial systems (e.g., senior judges); and
• Public institutions (e.g., heads of state-owned enterprises, central banks, or regulatory bodies).
• The emphasis is on the position being "public," meaning it is tied to:
• Governance or public administration;
• Whether elected, appointed; or
• Otherwise formally recognised.
• It can be held in the UK or internationally.

"PUBLIC POSITION AND PROMINENT PUBLIC FUNCTIONS"

• THE "PROMINENT" ASPECT, often tied to Test 1, implies the position carries significant visibility, authority, or influence (e.g., a president, prime minister, or senior official, as opposed to a low-level bureaucrat).

DEFINITION OF "PROMINENT PUBLIC FUNCTIONS"

• The term "prominent public functions" is more explicitly addressed in the MLRs and FATF guidance, which the FCA adopts.
• According to Regulation 35(14) of the MLRs and FATF recommendations, individuals entrusted with prominent public functions are those who:
• Hold senior, influential roles within public or governmental structures.
• These functions typically involve decision-making power, access to public funds, or influence over policy or governance.
• Examples include:
• Heads of state, heads of government, ministers, and deputy or assistant ministers.
• Members of parliament or similar legislative bodies.
• Members of the governing bodies of political parties (where the party has significant influence or representation).
• Senior judicial officials, such as members of the supreme courts or constitutional courts.
• Senior military officials, such as generals or admirals with command over significant resources or operations.
• Senior executives of state-owned corporations or public bodies (e.g., CEOs of nationalised industries or central bank governors).
• High-ranking officials in international organisations (e.g., UN, NATO, or World Bank senior leadership).
• The level of authority, influence, or control over public resources or policy determines the "prominent" nature of these functions.
• The MLRs and FATF guidance emphasise that these roles carry a higher risk of involvement in corruption or money laundering due to their access to power or funds, which is why Politically Exposed Persons (PEPs) are subject to enhanced due diligence.

FURTHER TO THE ABOVE, THE FCA SAYS THOSE WHO SHOULD BE TREATED AS A PEP ARE THOSE DEFINED AS INDIVIDUALS ENTRUSTED WITH PROMINENT PUBLIC FUNCTIONS, AND WILL INCLUDE: 

• Heads of state, heads of government, ministers and deputy or assistant ministers.      
• Members of parliament or similar legislative bodies: 
• Similar legislative bodies include regional governments in federalised systems and devolved administrations, including the Scottish Parliament and Scottish Government, the Northern Ireland Assembly and Northern Ireland Executive and the National Assembly for Wales and the Welsh Government, where such bodies have some form of executive decision-making powers.
• It DOES NOT include local government in the UK, but it may, where higher risks are assessed, be appropriate to do so in other countries. 
• Members of the governing bodies of political parties: 
• THE FCA consider this ONLY applies to political parties that have some representation in a national or supranational Parliament or similar legislative body as defined above.
• The extent of who should be considered a member of a governing body of a political party will vary according to the constitution of the parties, but will generally ONLY apply to:
• The national governing bodies where a member has significant executive power (eg over the selection of candidates or distribution of significant party funds).    
• Members of the supreme courts, constitutional courts or any judicial body whose decisions are not subject to further appeal except in exceptional circumstances: 
• In the UK, this means ONLY judges of the Supreme Court;
• Firms SHOULD NOT treat any other member of the judiciary as a PEP; and
• ONLY apply EDD measures where they have assessed additional risks.
• Members of courts of auditors or the boards of central banks.
• Ambassadors, charges d’affaires and high-ranking officers in the armed forces: 
• THE FCA consider this is ONLY necessary where those holding these offices on behalf of the UK government are at:
• The Permanent Secretary/Deputy Permanent Secretary level; or
• Hold the equivalent military rank in the UK, this will be Vice Admiral, Lieutenant General or Air Marshal.
• Members of the administrative, management or supervisory bodies of State-owned enterprises:
• THE FCA consider that this ONLY applies to for-profit enterprises:
• Where the state has ownership of greater than 50% or
• Where information reasonably available points to the state having control over these enterprises’ activities. 
• Directors, deputy directors and members of the board or equivalent function of an international organisation: 
• THE FCA consider that international organisations ONLY include:
• International public organisations such as:
• The UN; and
• NATO.
• The government made clear in their consultation of 15 March 2017 that they DO NOT intend this definition to extend to INTERNATIONAL SPORTING FEDERATIONS.
• A list of international organisations is available on the GOV UK website. https://www.gov.uk/government/publications/exempt-exm/list-of-international-organisations-whose-employees-qualify-for-exempt-entry-clearances-accessible-version
• Non-executive board members of CENTRAL GOVERNMENT BOARDS in the UK SHOULD NOT be treated as PEPs unless:
• They already meet the definition of a PEP in respect of another capacity (e.g. a Member of the House of Lords). 
• The definition of a ‘PROMINENT PUBLIC FUNCTION’ will vary according to the nature of the function a person holds: 
• THE FCA expect firms to understand the nature of the position held and whether the function gives rise to the risk of large-scale abuse of position and document decisions to go beyond the functions set out in the Regulations and above.
• If a position is held in a country assessed as being at a lower risk of large-scale corruption (because of the system and checks and balances in place that reduce the threat), then ONLY:
• Those with true executive power should be considered to hold a prominent public function.
• In the UK, it WILL NOT usually be necessary to treat public servants as having a prominent public function BELOW:
• Permanent; or
• Deputy Permanent Secretary.
• If a firm establishes an exceptional case and applies the definition to functions more junior than these levels, it should record its rationale.

• The Regulations exclude from the definition of a PEP those who are ‘junior or mid-ranking’:
• In those cases, it will usually ONLY be necessary to meet the obligations to undertake customer due diligence;
• However, a firm should be alert to the potential that middle-ranking and more junior officials could act on behalf of a PEP;
• Where ongoing monitoring of a relationship or information collected about the customer suggests this risk, a firm should consider what additional measures it needs to take; and
• This includes any transaction or business relationship established in a high-risk third country.
• If a person who is a PEP no longer has a prominent public function:
• That person should continue to be subject to risk-based enhanced due diligence for at least 12 months after the date they ceased to hold that public function; and
• Firms may apply measures for an extended period to address risks of money laundering or terrorist financing concerning that person. Still, the FCA considers that this will only be necessary in the cases of PEPs where a firm has assessed that a PEP poses a higher risk, in line with this Guidance, and the firm should document this rationale.
• Firms should note that the Regulations explicitly state they CANNOT  APPLY these measures to those who WERE NOT a PEP under the Money Laundering Regulations 2007:
• Those who held a prominent public position in the UK, such as a former MP, retired member of the House of Lords or a former UK ambassador, where they ceased that office before 26 June 2017.
• Where a person holds functions that meet the definition of both a domestic PEP and a foreign PEP, a firm should treat them as a foreign PEP:
• But firms should use the Guidance to assess the risk of that customer and apply the appropriate measures outlined in the lower or higher risk measures sections in this Guidance.
• Who should be considered a family member? Family members of a PEP are defined as including:
• Spouse, or civil partner;
• Children and their spouses or civil partners; and
• Parents.
• THE FCA consider that this includes siblings of PEPs.
• This is not a complete list.
• Firms should take a proportionate and risk-based approach to the treatment of family members who DO NOT fall into this definition:
• A corrupt PEP may use members of their wider family to launder the proceeds of corruption on their behalf:
• It may be appropriate to include a wider circle of family members (such as aunts and uncles) where a firm has assessed a PEP to pose a higher risk.
• This would NOT APPLY to lower risk PEPs:
• In low-risk situations, a firm SHOULD NOT apply any EDD measures to someone who is not within the definition above and should use normal customer due diligence measures; and
• A family member of a PEP is not a PEP themselves purely as a consequence of being associated with a PEP. 
•  A firm should include the definition it applies and its rationale as part of its policies and procedures to comply with the Regulations.
• The Regulations require that a PEP must be treated as a PEP after they leave office for at least 12 months, depending on risk:
• This DOES NOT apply to family members, who should be treated as ordinary customers, subject to customer due diligence obligations from the point that the PEP leaves office:
• THE FCA consider a family member of a former PEP should not be subject to enhanced due diligence measures unless this is justified by the firm’s assessment of other risks that the customer poses. A firm may not immediately become aware of its customer ceasing to be a PEP or being a family member of a known close association of such a person;
• THE FCA expect a firm to monitor this as part of ongoing reviews, or when it first becomes aware of this information; and
• For UK elections, THE FCA consider firms will be aware of these outcomes as they will be in the public domain and react to any changes in PEP status. 
• People who are ‘known to be close associates of a PEP A ‘known close associate’ of a PEP is defined as including an individual:
• Known to have joint beneficial ownership of a legal entity or a legal arrangement, or any other close business relationship with a PEP;
• Who has sole beneficial ownership of a legal entity or a legal arrangement that is known to have been set up for the benefit of a PEP; and
• A known close associate of a PEP is not a PEP themselves purely as a consequence of being associated with a PEP. 
• Beneficial owners of legal entities who are PEPs should identify when a PEP is a beneficial owner of a customer:
• It does not require that a legal entity be treated as a PEP just because a PEP is a beneficial owner.
• A legal entity should not be treated as a PEP unless it is clear that the PEP exercises significant control over the entity:
• If a firm is satisfied that a PEP is exercising significant control, then, in line with the risk-based approach, they should assess the risks posed by the involvement of that PEP and should then apply appropriate measures following this Guidance;
• These could range from applying customer due diligence measures in cases where the PEP is just a figurehead for an organisation (this will vary according to the individual circumstances, but applies even if they sit on the board, including as a nonexecutive director); and
• It could also involve applying EDD measures, according to the risk assessed in line with this Guidance, where it is apparent the PEP has significant control or the ability to use their funds within the entity.    
• Where a PEP is a beneficial owner of a corporate customer, then a firm should not automatically treat other beneficial owners/shareholders of the customer as a PEP or known close associate under the Regulations:
• However, they may do so, having assessed the relationship based on information available to the firm.

References

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