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 thematic review found PEP identification failures in a significant proportion of firms reviewed — 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) defines six categories of prominent public functions that qualify for PEP status. Understanding each category — and its boundaries — is essential for accurate identification.

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. MLR 2017 Regulation 35(12) also requires firms to identify and apply EDD to the PEP's family members and known close associates — often referred to as RCAs.

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. FATF Recommendation 12 and MLR 2017 both make clear that former PEPs must continue to be treated as PEPs for a period after leaving office.

The 12-month minimum

MLR 2017 Regulation 35(4) requires firms to continue applying EDD measures to a former PEP for at least 12 months after the person ceased to be a PEP. After 12 months, the firm must assess on a risk-based basis whether enhanced measures should continue.

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 — Firms no longer need automatic MLRO approval for every domestic PEP relationship, though MLRO oversight of all PEP relationships remains required.
• Former PEP documentation — Firms must document reasons for continuing or reducing EDD after the 12-month period.
• 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