In light of recent press coverage on Politically Exposed Persons (PEPs) we thought it would be worthwhile to revisit the rules and regulations around them.
Here are 8 key questions about PEPs answered.
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What is a Politically Exposed Person?
The term has been around since the 1990s and refers to people who either have, or have had, a high political profile; or who hold, or have held, public office.
The rules on PEPs also extend to relatives and close associates (RCAs). RCAs include family members of the PEP (e.g., spouse, parents, or children) and associates (e.g., an individual with joint beneficial ownership of a legal entity with a PEP).
A few examples of positions that could mean someone is considered a PEP include:
- Heads of state
- Members of parliament
- Judges
- High ranking military officials
- Senior executives in state owned businesses
Full details on what constitutes a PEP, family member or close associate can be found in the Joint Money Laundering Steering Group (JMLSG).
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Why do financial institutions have controls in place around PEPs and RCAs?
Given their positions, PEPs can pose a higher risk of money laundering as they may be vulnerable to corruption.
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If a client is a PEP or RCA what does that actually mean?
Financial institutions must have appropriate due diligence and monitoring in place for higher risk clients. Someone who is a PEP would typically be considered higher risk than if they were not a PEP.
At Nucleus we have documented processes to ensure we have appropriate controls and monitoring in place based on the level of risk posed.
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How long do requirements on PEPs last?
Based on the JMLSG the obligation to apply Enhanced Due Diligence measures to an individual ends after they have left office for one year, or longer if a firm considers it appropriate.
At Nucleus we would review this on a case-by-case basis dependent on the level of risk posed.
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What are Nucleus’ requirements for PEPs?
Each PEP and RCA is reviewed on a case-by-case basis, and we would expect to see enhanced due diligence based on their higher risk status. This includes a PEP questionnaire, ID and address verification and potentially source of wealth evidence dependent on the type of product that they have.
We also include information on PEPs in our new colleague induction and in our annual financial crime elearning module.
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How does Nucleus monitor PEPs?
We use a tool to monitor all clients against lists of known PEPs. Sometimes we’ll get a match for a client and will need to get in touch with the adviser to find out more information so that we can confirm if it’s a true match. Typically, we’ll ask for confirmation of the client’s current occupation. If it turns out the client is a PEP, we’ll then look to obtain the appropriate due diligence documents and put monitoring in place.
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What should you do if one of your clients is a PEP?
If you’re an adviser and know that one of your clients is a PEP or RCA, you should make sure you understand what their role is. Then you’ll be better positioned to understand the level of risk. You may have a client who lives in the UK, but travels abroad for work and is a PEP based on their position on an overseas body.
If you think that there’s a PEP or RCA on the Nucleus platform that we don’t know about then please raise a Jira or get in touch with your client relationship manager. We’ll then review the client record and confirm further requirements.
If you have a new client who is a PEP or RCA then get in touch and we’ll review the details before adding the client to the platform.
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Where can I get more information?
If you have questions about a specific client then raise a Jira or give us a call and we’ll look into it.
Otherwise, please take a look at the detailed guidance provided by the JMLSG.
