Parliamentary Secretary to the Treasury (): Today the
Government has laid The Money Laundering and Terrorist Financing
(Amendment) Regulations 2023 (SI 2023/1371) a Statutory
Instrument to amend the Money Laundering, Terrorist Financing and
Transfer of Funds (Information on the Payer) Regulations 2017
(the Regulations) in relation to the treatment of Politically
Exposed Persons (PEPs) who are entrusted with prominent public
functions by the UK (known as ‘domestic PEPs’).
The amendment makes clear that under the Regulations the starting
point for banks and other regulated firms in their treatment of
domestic PEPs, or a family member or known close associate of a
domestic PEP, must be to treat them as inherently lower risk than
non-domestic PEPs. Accordingly, regulated firms must apply a
lower level of enhanced due diligence to domestic PEPs compared
to non-domestic PEPs, unless other risk factors are present.
The Government is making this change in order to ensure that
banks and other regulated firms take a proportionate and
risk-based approach to the treatment of domestic PEPs, in line
with the Government’s broader approach to anti-money laundering
and counter-terrorism financing (AML/CTF) controls. While the new
requirements have featured for some time in FCA guidance on the
treatment of PEPs, legitimate concerns continue to be raised that
a number of holders of prominent public positions have
encountered problems accessing financial services due to their
status as Politically Exposed Persons under the Regulations, as
have their family members. Often, this takes the form of
potentially disproportionate or overly frequent requests for
information about personal financial matters and affects both
PEPs themselves and family members or close associates. The
Government is fully committed to tackling money laundering,
terrorist financing and corruption, but it will always work to
ensure this is done in a proportionate, risk-based way that
avoids undue burdens on law-abiding citizens.
SI 2023/1371 fulfils the Government’s commitment set out in
Section 77 of the Financial Services and Markets Act 2023 (the
Act) to amend the Regulations to make it clear that the starting
point for AML/CTF-regulated firms when considering their
treatment of domestic PEPs and their relations and close
associates should be to treat them as inherently lower-risk than
non-domestic PEPs.
Section 78 of the Act also committed the Financial Conduct
Authority to conduct, and publish the conclusions of, a review
into how financial institutions are following its guidance. This
review will consider whether the FCA’s guidance on PEPs remains
appropriate, and the FCA will be required to amend its guidance
if the review finds it necessary to do so. If the FCA finds that
the guidance is no longer appropriate, it will publish draft
revised guidance for consultation, taking into account the
Treasury’s amendment to the Regulations, within the 12-month
timeframe given for the review (i.e., by 29 June 2024). Given the
strength of concern on this issue, the Government expects that
the FCA will prioritise this important review over the coming
months.
The Government would like to thank again those who have taken the
time to raise these issues, and those who have engaged with the
FCA’s review.
