Who is a Politically Exposed Person? The definitive answer.

Why getting PEP identification right matters

Of all the customer risk categories in AML compliance, Politically Exposed Persons (PEPs) are among the most consequential, and most misunderstood. Get the identification wrong in one direction and you fail to apply required Enhanced Due Diligence, exposing your firm to regulatory action. Get it wrong in the other direction and you over-screen ordinary customers, damaging relationships and creating operational burden.

The FCA's 2024 multi-firm review found room for improvement in every firm it examined in detail: both under-identification of genuine PEPs and over-identification of individuals who did not meet the threshold. This guide cuts through the complexity.

The FATF definition: where it all starts

The concept of the Politically Exposed Person was formalised by the Financial Action Task Force (FATF) in its 2003 revision of the 40 Recommendations. The FATF definition, adopted into UK law via MLR 2017, defines a PEP as:

The key phrase is "entrusted with a prominent public function." This is the test. The rationale is straightforward: individuals in positions of public power have both the opportunity and, in some cases, the motivation to misuse that power for personal financial gain, through bribery, corruption, embezzlement of public funds, or abuse of their position to benefit associates.

It is important to be clear about what PEP status is not: it is not an accusation of wrongdoing. Being identified as a PEP is a risk indicator, not a finding of guilt. The vast majority of PEPs are entirely legitimate individuals who happen to hold (or have held) public positions. The obligation is to apply additional scrutiny, not to refuse business.

PEP categories: who qualifies

MLR 2017 Regulation 35(12)(a) provides the core definition of a PEP. Regulation 35(14) supplements that definition with a non exhaustive statutory list of eight types of prominent public function. FATF standards and FCA guidance provide further interpretation and practical scoping of those statutory categories.

The "senior" threshold: where the line is drawn

Several categories require the individual to hold a "senior" position. MLR 2017 does not define "senior" numerically: it is a judgement call based on the prominence of the public function and the degree of power and influence it carries. The FCA's FG25/3 guidance provides important clarification on where the line falls for UK domestic positions (see Section 07 below).

The general principle: the more influence over public funds, public policy, or regulatory decisions, the more likely a position qualifies. A permanent secretary at a major UK government department qualifies; a mid-grade civil servant in the same department does not.

Domestic vs foreign PEPs: a critical distinction

One of the most important distinctions in PEP compliance, and one that changed significantly with FG25/3, is between domestic and foreign PEPs. The risk profile is materially different, and so are the compliance obligations.

Why are foreign PEPs higher risk?

The elevated risk of foreign PEPs reflects several factors that do not apply, or apply less strongly, to domestic PEPs:

• Weaker rule of law: in many countries, the legal and institutional constraints on political corruption are weaker than in the UK
• Less transparency: beneficial ownership, asset declarations, and public accountability mechanisms are less developed in many jurisdictions
• Cross-border complexity: funds from foreign corruption are often deliberately moved across jurisdictions to obscure their origin
• Enforcement asymmetry: UK law enforcement has less visibility into the conduct of foreign officials than domestic ones
• Historical evidence: the majority of high-profile PEP-related money laundering cases have involved foreign officials laundering proceeds in the UK financial system

Relatives and Close Associates (RCAs)

PEP obligations do not stop with the PEP themselves. Under MLR 2017 Regulation 35(1), firms must also determine whether a customer or beneficial owner is a family member or known close associate of a PEP (RCA), and Regulation 35(5) then requires EDD measures for that relationship. Regulation 35(12) supplies the definitions of "family member" and "known close associate" used throughout, it does not itself create the identification or EDD duty.

Who is a family member of a PEP?

• Spouse or civil partner
• Children and their spouses or civil partners
• Parents

Who is a "known close associate"?

A known close associate is an individual who is known to have joint beneficial ownership of legal entities or legal arrangements with a PEP, or who has any other close business or personal relationship with the PEP. This includes:

• Business partners with joint ownership or control
• Individuals with a joint bank account or investment portfolio
• Individuals who are sole beneficial owners of entities known to be set up for the benefit of a PEP

Why RCAs are high risk

Corrupt PEPs rarely hold assets in their own name. Family members and close associates are frequently used as nominees: holding assets, accounts, and companies on behalf of the PEP to obscure the true beneficial owner. Some of the largest financial crime cases in history have involved PEP funds held through RCA structures:

How long does PEP status last?

PEP status does not end the moment an individual leaves public office, at least not for the PEP themselves. FATF Recommendation 12 and MLR 2017 both provide for continued treatment for a period after leaving office. But the rule works differently for the former PEP than it does for their family members and known close associates (RCAs), a distinction the table below sets out.

The 12-month minimum

Where a person is no longer entrusted with the prominent public function that made them a PEP, Regulation 35(9) requires the relevant person to continue applying the requirements in paragraphs (5) and (8). Paragraph (a) sets a minimum period of at least 12 months. Paragraph (b) requires continuation for any longer period considered appropriate to address the relevant money laundering or terrorist financing risks.

FCA Guidance FG25/3: the July 2025 landmark

The FCA's Finalised Guidance FG25/3, published in July 2025, represents the most significant update to PEP compliance expectations in the UK since the MLR 2017. It followed a statutory review of the domestic PEP provisions and addressed industry concerns that UK domestic PEPs were being treated with the same level of scrutiny as high-risk foreign officials, disproportionate to their actual risk.

Key changes under FG25/3

• Domestic PEPs are generally lower risk: UK PEPs should not automatically receive the same treatment as foreign PEPs. Risk must be assessed individually.
• MLRO sign off not required automatically: The MLRO need not personally approve each relationship involving a PEP, family member or known close associate. Approval must come from a person who meets the statutory senior management test. The MLRO must remain aware of PEPs onboarded or rejected and ensure that the firm's overall PEP controls comply with the Regulations, FCA guidance and the Consumer Duty.
• Former PEP documentation: FG25/3 expects firms to document their rationale when continuing the Regulation 35(5) and (8) measures beyond 12 months under Regulation 35(9)(b). The guidance does not state an equivalent specific requirement for ending those measures after the minimum period, although its broader expectations concerning documented PEP risk assessments and EDD decisions still apply.
• Proportionality emphasis: Enhanced measures must be proportionate to the actual risk presented by the specific individual, not applied mechanically.

Who is NOT a PEP: common mistakes

FG25/3 provides important clarification on individuals who do not meet the PEP threshold. Getting this right reduces unnecessary burden on customers and staff while maintaining focus on genuine risks.

Frequently asked questions