What’s a PEP?

A politically exposed person (PEP) is someone who holds, or has held, a prominent public function. Because these individuals have access to power, influence and public funds, they can pose a higher inherent risk of money laundering, corruption or bribery. 

The Money Laundering Regulations 2017 (as amended) (MLRs) require regulated professionals to identify PEPs, assess the risks they present and apply enhanced due diligence when necessary.

Who is considered a PEP?

The Regulations define a PEP as an individual entrusted with prominent public functions, plus their immediate family members and known close associates. Examples include senior politicians, members of parliament, judges, ambassadors, military officials and executives of state-owned enterprises.

This definition applies to both domestic and non-domestic PEPs. Following the new rules on UK PEPs that took effect in January 2024, you’re now asked to assume that UK PEPs automatically carry a lower starting risk than foreign PEPs. But they are still PEPs. And the requirement to apply enhanced due diligence has not been removed. Instead, regulated firms must take a proportionate, risk-based approach.

Why PEPs matter for AML

Regulated firms act as gatekeepers to the financial system. For any client with political influence, there is a greater risk that criminal funds could flow through legitimate services.

This is why PEP identification sits at the heart of your customer due diligence (CDD). It ensures you understand who the client is, how they built their wealth and whether the relationship is appropriate in the circumstances.

What due diligence is required?

When you identify a PEP, family member or close associate, you must apply enhanced due diligence (EDD). Under Regulation 35 of the MLRs, this might include:

• establishing source of wealth and source of funds, supported by credible evidence;
• obtaining senior management approval before entering the relationship;
• conducting enhanced ongoing monitoring throughout the engagement; and
• carrying out deeper verification and a risk-based assessment of the purpose of the relationship.

Sector guidance is aligned: whether you are an accountant, lawyer, high-value dealer or property professional, the obligation is to understand the client’s financial background and ensure it makes sense in context.

Identifying a PEP in practice

Good PEP identification combines technology with informed judgement. Your processes should include:

• screening clients and beneficial owners using reliable PEP and sanctions tools;
• asking direct onboarding questions about public roles or family connections;
• cross-checking open sources such as Companies House and news reports; and
• documenting your rationale, even where you conclude a client is not a high risk.

Because PEP status changes over time, ongoing monitoring is also essential.

Common pitfalls during AML reviews

Supervisors regularly identify weaknesses in how firms manage PEPs, including:

• relying on outdated templates instead of applying a risk-based approach;
• failing to obtain senior management approval;
• missing or superficial source of wealth evidence; and
• incomplete documentation to justify decisions made.

All these issues are flagged as common findings across sectors. Firms must be able to evidence why they have taken a particular approach, not just that checks were completed.

Final thoughts

PEPs aren’t clients to avoid. They are clients you must understand clearly. The real test is whether your approach demonstrates informed judgement: identifying political exposure, assessing the risks, gathering deeper evidence and documenting every step. A solid risk-based approach not only protects your business but helps maintain the integrity of the UK’s financial system.