Regulated firms are required to take a risk-based approach to customer due diligence and ongoing monitoring under the Money Laundering Regulations.
Firms should conduct enhanced due diligence (EDD) and enhanced ongoing monitoring in higher-risk situations. Situations that present a higher money-laundering risk might include, but are not restricted to:
- customers linked to higher-risk countries or business sectors
- customers who have unnecessarily complex or opaque beneficial ownership structures
- transactions that are unusual, lack an obvious economic or lawful purpose, are complex or large or might lend themselves to anonymity
The regulations also require that EDD measures should be applied where the customer is not present, in correspondent banking relationships where the correspondent bank is outside the European Economic Area, and for politically exposed persons (PEPs).
Politically exposed persons
Politically exposed persons (PEPs) are individuals whose prominent position in public life may make them vulnerable to corruption. The definition extends to immediate family members and known close associates.
The full definition of a PEP is set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. We have included more details in our Financial crime guide on how firms can identify, assess and mitigate their risks in these areas.
Guidance is also produced by the Financial Action Task Force regarding PEPs which provides standards for financial institutions when dealing with these types of customers.