Enhanced KYC requirements for Politically Exposed Persons

When fulfilling the "know your client" (KYC) requirement of the Money Laundering Regulations 2007, it is possible that a firm within the Regulated sector may identify their potential client as a Politically Exposed Person, or PEP, which means that the appropriate level of customer due diligence that must be undertaken by that firm will be heightened.

This element of money laundering law, among others, is related to the sixth of the 40 Recommendations of the Financial Action Task Force (FATF). This states that a financial institution should implement systems to determine whether a client is a PEP, to ensure any business with a client so identified has senior management or partner approval, and that such business receives enhanced monitoring for evidence of criminal activity. It also recommends that the institution does what it can to establish the source of the funds used in the transaction.

The EU Third Money Laundering Directive concurs, stating, "The international effort to combat corruption also justifies the need to pay special attention to such cases and to apply the complete normal customer due diligence measures in respect of domestic politically exposed persons or enhanced customer due diligence measures in respect of politically exposed persons residing in another Member State or in a third country."

A definition of what it is to be politically exposed under UK law has been laid out in Schedule 2 of the Money Laundering Regulations 2007, and includes a range of political representatives, high-ranking judicial officers and important public financiers, among others. Junior members of these sectors are explicitly excluded, but family members and close business associates of those not excluded should also be considered as PEPs.

To comply with the Regulations, the KYC process must have the ability to recognise when a potential client may have the potential to abuse significant power for personal gain, in any country. Although there is a possibility to outsource this element of the process, which may save Regulated firms a certain amount of expenditure, the potential cost for banks alone to achieve PEP identification has been estimated as up to £1billion.

PEPs, KYC and ML Solutions 4U
Despite the financial cost, despite the expense of time, despite the insistence of the Wolfsberg Group that "the majority of PEPs do not abuse their position and will not represent any undue additional risk to a Financial Institution solely by virtue of that categorization," it is necessary to comply with the enhanced identification and due diligence requirements within the Regulated Sector.

MLROs in the firms that comprise this sector are the ones who shoulder the onerous duty of ensuring that this compliance is achieved, through their management, monitoring systems and provision of training. ML Solutions 4U offers those officers accredited anti-money laundering training packages and workshops, either for themselves or for the employees of their firms, to help ensure that compliance is achieved.

Our tailored packages can be delivered in seminars, in situ, or across the internet, and are designed to help your firm meet the obligations set out by the Money Laundering Regulations 2007, the Proceeds of Crime Act 2002, and all other relevant UK law. To discuss your business' training requirements, from planning compliance to KYC, please contact ML Solutions 4U through the online contact form, or simply call us on 0845 402 0001.

Money Laundering Information » Political Exposure And KYC Requirements