FCA strengthens anti-money laundering rules

The FCA says a PEP may be in a position to abuse their public office for private gain and may use the financial system to launder the proceeds.

The regulations require firms to have in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer is a PEP.

The guidance says: "This includes where a PEP, family member or close associate is operating via an intermediary or introducer (this may include others in the regulated sector such as banking staff, lawyers, estate agents etc). There are many legitimate reasons for doing so (eg a solicitor acting in a property transaction). In these situations, and in line with FATF guidance, we expect firms to understand as part of their due diligence why a PEP, family member or close associate is using such an arrangement and use that as part of their assessment of risk."

The new guidance requires firms to apply "more stringent" approaches where the customer is assessed as having a greater risk. The FCA says that in those circumstances firms will need to take further steps to verify information about the customer and the proposed business relationship.

In the FCA’s view, a PEP poses a higher risk if the product or relationship a PEP is seeking is capable of being misused to launder the proceeds of large-scale corruption, or if they are entrusted with a prominent public function in a country that is considered to have a higher risk of corruption.

Other attributes include personal wealth or lifestyle inconsistent with known legitimate sources of income or wealth, credible allegations of financial misconduct, or responsibility for large public procurement exercises.

The guidance says that where a firm has identified a PEP, they are required to have approval from senior management for establishing or continuing the business relationship, take adequate measures to establish the customer’s source of wealth and funds, and once the business relationship is entered into, conducting enhanced ongoing monitoring of the relationship.

The legislation and guidance clarifies that a "case by case basis is required with the risk assessed of individual PEPs rather than applying a generic approach to all PEPs".