Politically exposed persons
24 May 2024
An amendment to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (opens new tab) (the Regulations) making changes to the treatment of politically exposed persons (PEPs) has come into force.
Treatment of domestic PEPs
The different treatment of domestic PEPs and family members or known close associates of domestic PEPs (hereinafter referred to collectively as ‘domestic PEPs’) has now been incorporated into The Regulations. A domestic PEP is a PEP entrusted with prominent public functions by the United Kingdom.
The amendment means that domestic PEPs must still be subject to enhanced customer due diligence (ECDD) measures, but should be treated as lower relative risk than non-domestic or non-domestic (or foreign) PEPs. The amendment means that domestic PEPs must still be subject to enhanced customer due diligence (ECDD), but should be treated as lower relative risk than non-domestic (or foreign) PEPs.
The exception to this is where other factors increase the level of risk associated with a domestic PEP. Casino operators should consider amending their policies, procedures and controls to take the different treatment of domestic PEPs into account, and that they should normally be subject to less ECDD measures in comparison to foreign PEPs, except in circumstances where there are other factors that increase the level of risk.
The specific amendments to the Regulations are:
Regulation 35(3A):
For the purpose of the relevant person’s assessment under paragraph (3), where a customer or potential customer is a domestic PEP, or a family member or a known close associate of a domestic PEP -
- the starting point for the assessment is that the customer or potential customer presents a lower level of risk than a non-domestic PEP, and
- if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP
Regulation 35(12(d): “domestic PEP” means a politically exposed person entrusted with prominent public functions by the United Kingdom;
(e)“non-domestic PEP” means a politically exposed person who is not a domestic PEP;
(f)“enhanced risk factors”, in relation to a customer or potential customer who is a domestic PEP or a family member or a known close associate of that domestic PEP, mean risk factors other than the customer’s or potential customer’s position as a domestic PEP or as a family member or a known close associate of that domestic PEP.
What does this mean in practice?
Casinos should amend their policies, procedures and controls to make it clear that domestic PEPs are treated as inherently lower relative risk than non-domestic PEPs, as a starting point, in the absence of other enhanced risk factors that increase the level of risk.
Domestic PEPs may still pose significant risks depending on their PEP status and the extent to which enhanced risk factors are present. Casinos should therefore still assess PEP risk on a case-by-case basis.
It should also be noted that the other requirements under Regulation 35 of the MLRs 2017 still apply in relation to domestic PEPs. These are:
- having senior management approval for establishing a business relationship with a PEP
- taking adequate measures to establish the source of funds and source of wealth that are involved in the business relationship
- conducting closer ongoing monitoring of the business relationship.
The Gambling Commission’s, ‘The prevention of money laundering and combating the financing of terrorism’ publication will be updated to reflect these changes in due course.
Please note that the Financial Conduct Authority (the FCA) is due to review and update its own guidance on this subject by June 2024. As a result, this notice may be further updated or amended following any changes to the FCA guidance on the treatment of PEPs. Under the Regulations, the FCA has a duty to provide guidance regarding the treatment of PEPs.