A Politically Exposed Person (PEP) match on an identity check is not a decline trigger. It's a signal to apply enhanced due diligence (EDD) proportionate to risk. Most PEP relationships can and should proceed. This article sets out the steps to follow.
What counts as a PEP
A PEP is someone who holds (or has held) a prominent public function. For example, an MP, senior civil servant, judge, senior military officer, or board member of a state-owned enterprise. The definition also extends to:
Family members: spouse/partner, children and their partners, parents
Known close associates: business partners, joint beneficial owners, or others with close business links
PEPs are also split into domestic and foreign. This distinction matters a lot under current rules (see below). If someone qualifies as both, treat them as a foreign PEP.
The regulatory position (as it stands)
Since the January 2024 amendment to Regulation 35 of the Money Laundering Regulations 2017, and the FCA's Finalised Guidance FG25/3 (July 2025, replacing the 2017 guidance), the starting point is:
Domestic PEPs, their family members and known close associates are presumed lower risk than foreign PEPs, unless enhanced risk factors are present.
EDD must be proportionate. Firms should not apply blanket, maximal EDD to every PEP regardless of actual risk.
Firms must still meet Consumer Duty obligations: communications with PEP customers should be clear, fair, and not implicitly treat them as suspected of wrongdoing. FATF is explicit that PEP status is preventive, not accusatory.
Step-by-step: what to do
1. Verify the match is genuine. PEP lists commonly throw up false positives on common names. Confirm identity (DOB, address, other identifiers) before treating the match as real.
2. Categorise the individual. Domestic or foreign PEP? Direct PEP, family member, or close associate? This drives everything that follows.
3. Assess the risk. Apply a risk-based view rather than a fixed checklist. Consider: is this a domestic PEP with no other risk indicators (lower risk, lighter-touch EDD), or a foreign PEP / one with elevated risk factors (higher risk, fuller EDD)?
4. Apply proportionate EDD. For higher-risk PEPs this typically includes:
Establishing source of wealth and source of funds
Understanding the purpose and intended nature of the relationship
Enhanced ongoing monitoring of the relationship and transactions
For lower-risk domestic PEPs, lighter EDD may be sufficient.
5. Get appropriate sign-off. Establishing or continuing the relationship needs approval from someone with sufficient seniority, knowledge of the firm's ML/TF/PF risk exposure, and authority to take decisions on it. This doesn't have to be the MLRO personally — but who can approve, and on what basis, should be clearly documented and staff should be trained on it.
6. Document the rationale. Record why the individual was categorised as they were, what EDD was applied (or why less was needed), and who approved the decision. This is what the FCA will look for in a file review.
7. Communicate fairly with the customer. If additional information is needed, explain clearly why it's being requested. Avoid language or process that makes the customer feel suspected of wrongdoing.
8. Keep it under review. PEP status isn't necessarily permanent. Someone who has left a prominent public function may cease to be treated as a PEP after a reasonable period (commonly considered to be around 12 months, depending on ongoing risk). Build periodic review into ongoing monitoring rather than treating the original decision as final.
Common mistakes to avoid
Auto-declining or off-boarding on a PEP match alone
Applying the same heavy EDD to a low-risk domestic PEP as to a high-risk foreign PEP
Treating PEP status as evidence of wrongdoing in customer-facing communication
No documented rationale for the risk categorisation or approval decision
When to escalate
Escalate to the Compliance/MLRO function where: the match involves a foreign PEP, any enhanced risk factors are present, source of wealth/funds can't be satisfactorily evidenced, or there's genuine doubt about categorisation.