On 7 July 2025, the Financial Conduct Authority released finalised guidance on the treatment of Politically Exposed Persons (“PEPs”) (FG25/3(, following a consultation process launched in July 2024 and marks the first major update to the PEPs guidance since its original publication in 2017 ( the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations) (the “Regulations”)).
This final guidance focuses on providing firms with a more balanced, practical approach to enhanced due diligence, particularly when assessing domestic PEPs, their families and close associates. The changes aim to cut down on unnecessary delays and make it easier to onboard low-risk individuals without compromising financial crime safeguards.
The key new amendments can be summarised as follows:
- Refined Definition for PEPs
- Sign off for PEP Relationships
- Recognition of Domestic PEPs Lower Risk
- PEP Declassification Rules
- Enhanced Risk Indicators
Refined Definition of PEPs
The updated definition has reduced the scope to exclude roles previously falling within the scope of the Regulations. Moving forward, Non-Executive Board Members within the UK civil service now will be explicitly excluded from classing as PEPs.
Further, there are (minor) clarifications to the definition of high-ranking officers in the armed forces, whereby it is only necessary to consider them a PEP when their work is done on behalf of the UK government as a Permanent Secretary or Deputy Permanent Secretary or hold the equivalent military rank such as Vice Admiral, Lieutenant General or Air Marshal.
Similarly, PEP’s classification for judiciary has been refined to Supreme Court judges exclusively.
However, firms are permitted to continue to apply regulations 35(5) and (8) of the Regulation (see here: https://www.legislation.gov.uk/uksi/2017/692/regulation/35) to individuals who are no longer PEPs with the new adjustments, ifit is to address the appropriate the money laundering concerns arising from that individual.
Flexible Sign-Off for PEP Relationship
FCA has also increased the flexibility around who can approve business relationships with PEPs, by offering alternative approaches to sign-off. During the consultation process, several respondents questioned the previous expectation that the Money Laundering Reporting Officer (“MLRO”) must personally sign off on every PEP relationship a firm engages in. Concerns were raised about the potential conflict with the MLRO’s broader oversight responsibilities, particularly in larger firms with complex compliance structures or separate customer-facing and compliance functions; it was also raised that clearer guidance was required on how to manage sign-offs in practice, especially in relation to distinguishing between high-risk and low-risk PEPs, and whether specific job roles could be identified as falling within the definition of senior management.
In response, the FCA has clarified that firms may delegate approval to individuals who have appropriate knowledge of the firm’s exposure to financial crime risks and hold the authority to make decisions that affect that risk. For lower-risk PEPs, sign-off can now occur at a more junior level, provided those responsible are properly trained and their authority is clearly documented. While MLROs no longer needs to approve each case personally, they are still expected to maintain oversight of the firm’s PEP controls and ensure that both onboarding and ongoing monitoring processes are operating effectively and in line with regulatory expectations.
Recognition of Domestic PEPs as Lower Risk
The guidance acknowledged feedback requesting more detailed examples of enhanced due diligence measures and practical scenarios, however the FCA found the existing guidance to already provide the correct balance to scenarios.
The FCA however, now permits firms to begin with the presumption that domestic PEPs are lower risk, unless other red flags are present. It is highlighted that this does mean that foreign PEPs are to be treated as a consistently higher risk than domestic PEPs.
PEP Declassification Rules
The FCA has also addressed the process for declassifying PEPs and their close associates. Under the existing regulations, individuals must no longer be treated as PEPs once they no longer hold a prominent public function unless there is a justified, documented reason to continue applying enhanced due diligence.
The guidance makes clear that it would not be compliant for firms to retain a PEP designation beyond what is required. The FCA has introduced practical measures to support timely updates to an individual, including references to significant events such as planned elections; it also suggests the option for firms to invite customers to self-report changes in status. These additions are intended to help firms maintain accurate records while continuing to meet their regulatory obligations.
Enhanced Risk Indicators
The guidance provided indicators that may suggest a PEP is higher or lower risk.
PEPs may be considered lower risk when certain product, geographic, or professional characteristics are present. For instance, where a PEP is seeking access to a low-risk financial product, such as basic banking services or standard savings accounts, particularly those subject to simplified due diligence procedures, the risk is typically reduced.
A PEP may also be viewed as lower risk if they hold office in a country known for strong anti-corruption measures, including political stability, free and fair elections, robust public institutions, and an independent press. Additional factors such as credible enforcement of anti-money laundering laws, judicial independence, protections for whistleblowers, and transparent ownership registries further support a low-risk classification.
In terms of personal and professional indicators, those who are subject to rigorous public disclosure regimes, or who lack executive decision-making power such as backbench MPs or members of opposition parties may also pose less risk. These individuals typically have less influence over state assets or procurement decisions, reducing their exposure to potential misuse of public power.
On the other hand, several factors may increase a PEP’s risk profile. For example, a customer seeking access to products or services that could be exploited to conceal large sums, such as complex investment vehicles or private banking facilities, may signal higher risk.
PEPs from countries with systemic corruption, weak governance, or political instability are more likely to be associated with money laundering concerns. Risk is further heightened in jurisdictions lacking transparent public registries, those with constrained media freedoms, or where legal protections for whistleblowers are minimal or absent.
As for individual indicators, signs of unexplained wealth, credible allegations of bribery or financial misconduct, or the ability to influence large government contracts or license allocations, such as in mining, infrastructure, or state concessions are clear red flags. These indicators suggest a greater opportunity and incentive for misuse of public office and warrant more intensive scrutiny.
Conclusion
The updated guidance indicates encouragement for firms to update their internal policies on PEPs. The FCA has made it clear that effective AML controls depend not just on process, but on proportionality, clear documentation, and sound judgment grounded in actual risk.
For further information click here to read the full guidance: https://www.fca.org.uk/publication/finalised-guidance/fg25-3.pdf
