We recently covered the UK’s new AML Regulations (the 2017 Regulations), which implement the proposals contained within the EU’s 4th Money Laundering Directive. The main crux of the new regulations is that now all customer due diligence is required to be on a risk-sensitive basis. Shortly after the new regulations were put in place, the FCA (Financial Conduct Authority) published guidance on how to appropriately examine and handle Politically Exposed Persons (PEPs) in an attempt to combat money laundering.
At the centre of the new risk-based approach is the importance of ensuring due diligence for customers is as effective and thorough as possible, with the level of risk ascertained on a case-by-case basis. For the highest risk scenarios, the regulations dictate that enhanced customer due diligence must be carried out.
One of the more significant changes to the MLR 2017 is that it won’t just be overseas PEPs that must be called into consideration; it will also apply to “domestic” PEPs. The FCA provides guidance on who should be treated as a PEP in a UK context and what constitutes as “truly prominent” PEP positions. The guidelines also give clarity to other important questions that may arise from the new regulations, such as who should be considered a close “associate” or family member, what some indications may be of the level of PEP risk and what measures firms should be taking when they have identified both low or high risk situations.
Above all, the FCA has made it clear that firms must ensure they are applying a risk sensitive approach to establishing whether any of their customers would qualify as PEPs. Whilst it is unlikely that many UK customers will need to be treated as such in practice, the FCA’s guidance states that they expect firms to “take appropriate but proportionate measures in meeting their financial crime obligations”. It is therefore important for firms to be sure they have the correct systems and measures in place.
If you would like to talk to Jordans about your obligations concerning AML or our experience of assisting the corporate sector with AML/Compliance e-verification, please get in touch.
Written by Kate Saunders