How to Navigate the Latest Regulatory Shift on Screening Politically Exposed Persons

a mobile screen showing a list of names being checked for politically exposed persons out of which three are green and one is red

Introduction

As of January 10, 2024, The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 have come into force, ushering in changes in the due diligence measures applicable to politically exposed persons (PEPs). 

The amendment emphasises the significance of differentiating between domestic and non-domestic PEPs when implementing due diligence measures. Particularly, unless specific enhanced risk factors are identified, the due diligence measures for a domestic PEP are now less stringent compared to those applicable to a non-domestic PEP.

The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 signal a nuanced approach to managing risks associated with politically exposed persons. The distinction between domestic and non-domestic PEPs aims to strike a balance between due diligence requirements and the practicality of implementation.

Fraser Sinclair, Director of Risk & Compliance for Morton Fraser MacRoberts LLP and Head of AMLify, a partner of Amiqus that provides specialist AML educational support, training, auditing, and consultancy services to our clients, commented:

“The new amendment to the regulations will be seen as welcome by some, allowing a more pragmatic approach to be taken with the backing of the legislation. There are those who will make the case, though, that the treatment of UK PEPs as any less risky for money laundering is not well founded in evidence, especially in light of allegations of bribery and corruption to which UK PEPs are not immune. 

The interpretation and usefulness of the change is for each firm to decide on its own, but the fact there was a change at all highlights the continuing importance which needs to be placed on making sure you are satisfied, whatever your view, that you have appropriate coverage.”

Importance of screening for PEPs

In an era where financial crimes pose significant threats to global economies, the importance of screening for PEPs when taking on new clients cannot be overstated. From mitigating risks and ensuring regulatory compliance to preserving reputations and enhancing due diligence, continuous and thorough screening for PEPs, regardless of their residence, can help maintain the integrity and security of businesses.

1. Risk mitigation

Screening for Politically Exposed Persons (PEPs) is crucial for mitigating the risk of financial crimes such as money laundering and corruption. PEPs, due to their positions, may be more susceptible to illicit activities, making it essential for businesses to identify and monitor their interactions to prevent potential risks.

2. Compliance with regulatory standards

Robust PEP screening ensures adherence to regulatory standards. Screening of PEPs Is an important part of anti-money laundering (AML) and counter-terrorist financing (CTF) compliance, mandated by relevant regulations. Failing to implement adequate screening measures may result in legal consequences, fines, or reputational damage for businesses. 

3. Maintenance of reputation

Associating with individuals involved in financial misconduct can damage the reputation of businesses. Effective PEP screening safeguards the integrity of organisations by identifying and avoiding relationships with individuals who pose a higher risk of involvement in corrupt or illegal activities.

4. Enhanced due diligence

Screening for PEPs contributes to enhanced due diligence processes. Identifying PEPs allows businesses to tailor their risk assessment strategies, implementing more rigorous scrutiny when necessary. This targeted approach ensures that resources are allocated efficiently, focusing on areas with heightened risk.

How can Amiqus Help?

With the amendment regulations on differentiating risk of domestic politically exposed persons now in effect, firms should seize this opportunity to review and update practice-wide risk assessments and AML policies, ensuring alignment with the latest updates. Amiqus can assist you in achieving this through its all-in-one, fast, and secure digital AML checks, client due diligence, and client onboarding solutions. Find out more.

Amiqus’ market-leading Watchlist check brings you key information on whether your client is a Politically Exposed Person, has any global Sanctions against them, or any Adverse Media stories, all in real-time. 

Our PEP data is collected from government structure sources from around the globe. It goes beyond individuals to include relatives and close associates (RCAs) of PEPs as well. There are currently over 5000 sources used, each of which is monitored and updated every 30 days. Sources from countries where there is an ongoing election process are monitored and updated daily. 

PEPs are then classified into four risk categories (1-4), with Class 1 covering positions such as Head of State or members of government and governing board members of central banks, and down to Class 4 covering positions such as Mayors or Heads of local assemblies. 

What’s more? This all-encompassing check (Watchlist, PEPs, Sanctions, and Adverse Media) includes an option for Ongoing Monitoring, which means that the search will be re-conducted every day, and you will be notified of any changes.

Want to learn more about how our advanced solutions can streamline your client screening process and enhance risk management?  Speak to our experts today.

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