The Financial Conduct Authority published Finalised Guidance on the Treatment of Politically Exposed Persons (PEPs) for anti-money laundering purposes on 7 July 2025.
The guidance follows a consultation and multi-firm review, taking into account a wide range of industry feedback and observations. It aims to clarify its expectations around the identification, risk assessment, and treatment of PEPs, particularly in the context of UK-based individuals.
Definition of a PEP
The guidance draws on the definition of a PEP included within The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. A PEP is thus defined as someone holding a prominent public position who is entrusted with prominent public functions either in the UK or elsewhere in the world. The regulations also cover close family members or known close associates of PEPs.
Key highlights from the FCA guidance
- Risk-based approach central – The FCA reiterates its expectation that firms take what it describes as a ‘risk sensitive’ approach to the identification of PEPs and the application of enhanced due diligence (EDD).
- Case-by-case risk assessments – PEP assessments must be carried out on an individual basis, recognising that not all PEPs present the same level of risk. Firms are advised to consider various personal, professional, product, and geographic indicators when determining risk levels.
- Clarification on domestic PEPs – The FCA has refined its guidance to ensure that only those in genuinely prominent positions in the UK—such as senior political or governmental figures—are treated as PEPs. This means:
- Local government officials, junior civil servants, and all but the most senior members of the military should not be classified as PEPs.
- Non-executive board members of UK civil service departments are no longer automatically considered PEPs.
- The starting point for any risk assessment of UK based PEPs (and their close families or close associates) is that they are lower risk than foreign PEPs, and the EDD measures should be adjusted accordingly.
- International application – Similar treatment can be extended to individuals from jurisdictions deemed to have levels of transparency and governance comparable to the UK.
- Declassification of PEPs – Firms are reminded not to continue classifying individuals as PEPs where regulations no longer require it.
- Changes to sign-off processes – In response to industry feedback, the FCA has clarified that PEP-related decisions can be signed off by individuals with sufficient seniority and understanding of the firm’s risk exposure, aligning with the Money Laundering Regulations’ definition of senior management.
- Role of the MLRO – The MLRO must maintain oversight of the end-to-end operation of PEP controls, from onboarding through to ongoing monitoring.
Who the guidance applies to
This guidance applies to all firms whose anti-money laundering systems and controls fall under the FCA’s supervision, as well as foreign groups in respect of any business relations in the UK.
Implications for fund managers
UK-based fund managers—or those with UK investors or relationships—should review their classification of UK PEPs to ensure risk ratings align with the updated guidance and make adjustments where necessary.
Looking ahead, the guidance also serves to reinforce the need for:
- A clearly documented, risk-based approach to PEP identification and EDD
- Up to date and accurate investor profiles for all investors, including beneficial owners, facilitating the identification of PEPs or their associates and family members
- Robust, evidence-based justification for both the classification and non-classification of individuals as PEPs
- Effective ongoing monitoring and the ability to respond quickly to changes in investor circumstances
While the recognition that domestic PEPs generally pose a lower risk may be welcome, it introduces additional shades of grey in terms of the identification of PEPs and appropriate due diligence. The days of blanket categorisation are over. Good data and expert judgement are therefore key to ensuring decisions are demonstrably risk-based and proportionate.
How we can help
At Sonata One, we combine scalable technology with expert human support. Our team of legal and compliance analysts works to obtain and verify all necessary investor data, creating approved investor profiles complete with indicative risk ratings—including the identification and classification of PEPs. All profiles are then held securely and maintained centrally in our platform.
This gives our clients access to a single source of truth for all their investors, offering full visibility of associated risks—particularly those related to PEPs. Key benefits include:
- Centrally maintained investor profiles, continuously updated with indicative risk ratings
- Real-time monitoring of trigger events that may change investor status
- Expert support for the assessment of edge cases, with clear, auditable justifications
- Ongoing risk monitoring, incorporating product, geographic, and individual-level indicators
- Integrated MLRO support to help design and implement a proportionate, risk-based compliance programme
Your investors are probably already here
With over 53,000 investor profiles on our platform, there’s a strong chance we already know your LPs. Want to see who’s on board—or learn more about our KYC and MLRO solutions? Get in touch with our team.
